If you have any questions you want to put to Moneyfarm’s Investment Consultant team, please email your question to hello@moneyfarm.com and we’ll be in touch.

Question: My current income is £75,000 a year. What could the income tax cut proposed by Boris Johnson in the Leadership contest mean for my pension contributions?

Answer: Stephen Jones:

Boris Johnson’s headline-grabbing proposal to cut income tax for higher earners may be a welcome tax break for individuals. That said, it comes with a hidden cost for pension savers.

What could change

In the run-up to the Conservative Party leadership vote, Boris Johnson proposed raising the higher rate tax threshold for income tax. The new proposal would see the starting threshold for the higher rate tax band moved to £80,000 from £50,000. More people paying less income tax might seem like a win-win on your personal finances, but sadly, in this case, it is not all good news.

Currently, the tax bands in England and Wales are split in three: basic, higher and additional. You are not charged tax on the first £12,500 of your £75,000 annual income as this is covered by your Personal Allowance. The remaining £62,500 counts as your taxable income. For your current situation, the income between £12,500 to £50,000 will be charged at 20%, with the remaining income between £50,000 to £150,000 charged at 40%.

When could this happen?

When or if this policy ever gets implemented, is yet to be decided. There are already doubts over his premiership following his six failed parliament votes in six days, and the loss of his working majority.

With Government suspended until the 14 October, and the Brexit deadline fast approaching on the 31 October, it’s easy to see this getting lost in the short-term noise. If there’s a commitment to this proposal by Boris Johnson, expect to hear more in the next general election – which is unlikely to be before November, at the earliest.

Additionally, it’s not uncommon for Prime Ministers to backtrack on proposals flaunted in leadership bids once they’re in office. This is not to say the idea is dead or that it couldn’t be picked up by another MP – in fact, it’s probably quite attractive as the basic annual salary of an MP currently stands at £70,468.

If this tax cut is implemented, it will probably be introduced slowly over a number of years – just as the government is doing with new changes to inheritance tax rules. The residential nil rate band is essentially increasing the inheritance tax threshold level when an individual leaves a residence or the sale proceeds of a residence, to his direct descendants.

How this impacts you

For individuals like yourself who earn between £50,000 and the new proposed £80,000 threshold, this tax cut could help you save up to £6,000 in income tax. Whilst you will save on your income tax, the tax relief you’re eligible for on your pension contributions will fall from higher (40%) to basic (20%).

I’ve outlined the current tax relief system in England and Wales, below. As you can see, you’re eligible for tax relief relative to your income tax band. As you currently pay the higher rate of income tax, you’re eligible for 40% tax relief on your pension contributions, 20% each time you put money in your pension, and 20% through your Self Assessment tax return.

The overall impact of this tax cut will naturally depend on the person in question. To help visualise this, we’ll use the example of a £5,000 contribution.

How this could impact the size of your retirement pot?

As a higher rate taxpayer looking to place £5,000 in your pension, this currently costs you just £3,000. Broken down, you will personally contribute £4,000 to your pension and receive a ‘free’ £1,000 boost from the 25% government top-up – at Moneyfarm this is automatically added but this doesn’t happen everywhere. You can then claim back £1,000 for your higher rate tax relief in your Self Assessment tax returns.

Increasing the higher rate threshold to £80,000 will mean a £5,000 contribution costs you £4,000, rather than the £3,000 currently. As no higher rate tax has been paid, there is nothing to claim back in your SelfAssessment tax returns.

If you want to maintain your overall cost (after your basic and higher rate relief) at £3,000, you’ll be cutting the amount that goes into your pension pot by 25%. Instead of £5,000, you’ll get just £3,750 in your pension.

What if you live in Scotland?

Any change applied to the Income Tax band will impact England and Wales only. This would not apply to Scotland as the Scottish Parliament has devolved powers, allowing them to decide the income tax rates and bands.

Whilst there currently doesn’t seem to be any plans for Scotland to increase their own income tax threshold, Scottish savers will have to help fund the new policy. Increasing the income tax threshold will be offset by an increase in employee national insurance contributions to balance the books. The power of National Insurance still sits with Westminster.

What can you do?

No one ever knows for certain whether the income tax thresholds will be moved, but it’s best to remember that the pension rules are always vulnerable to changing.

We know pension rules can change, and that these changes – whether it’s to the state pension age, the limit to how much you can save, or how you access your pension – can have far-reaching consequences.

Saving more today, whether you increase your monthly contributions or invest a lump sum to maximise your annual allowance, will help you make the most of the generous pension tax relief currently available.

It’s important you look at your financial situation to ensure that any changes you make to your pension contributions are sustainable and don’t significantly reduce your standard of living. The more you can contribute today, the less likely you will need to make big sacrifices in the future to meet your retirement goals.

Not only will you be investing earlier and benefiting from a higher boost to your pensions contributions, but your pension pot will benefit from compounding – this is where the return on your investment is reinvested and generates its own return. Einstein is said to have called this the Eighth Wonder of the World – and for good reason, it can have a powerful impact on your overall returns.

Give yourself the best chance today to build the pension pot for your future, because one day, we all have to retire.

If you’d like to discuss the impact of recent UK events on your investments or your Moneyfarm portfolio, please reach out to me directly. My email address is stephen.jones@moneyfarm.com.

If you have any questions you want to put to Moneyfarm’s Investment Consultant team, please email your question to hello@moneyfarm.com and we’ll be in touch.

Question: I’ve seen that sterling took a hit this week and there’s been a lot of talk of a UK recession, what should I be doing with my investments?

Answer by Chris Rudden, Senior Investment Consultant:

With less than two months to go until the UK’s (already delayed) departure from the European Union, you can’t escape the Brexit noise. How the UK leaves the bloc – if it does – has far reaching consequences for the UK economy and financial markets.

But before we look at a popular strategy for weathering short-term Brexit noise, I think it’s important to understand the basic dynamics of the financial markets, most notably currency, equity and bonds.

Currency

Broadly speaking, signs of economic health will strengthen the value of an economy’s currency. Inversely, signs of a weakening economy will make said currency fall in value.

Currency is just like any other product; the more people that want it (the higher the demand), the higher the price those holding it can sell it for. If demand falls, the holder has to drop the price low enough for people to be interested in buying it again.

When the UK economy looks strong, it becomes a more attractive place to invest in for people and companies, and they need to buy pounds to do so.

This only directly affects your overseas investments, though, which benefit from a fall in the pound. Let’s look at an example:

Imagine you bought $100 worth of US stock several months ago for £75. Since then, the pound has fallen in value against the dollar. As the pound is worth less, you can get more for your $100 when you convert it back.

In this example, the same $100 worth of stock is now worth £80 when translated back to pounds. This is a 6.67% increase in your returns, without the stock actually changing in price.

This example gives us a good indication of what could happen to your unhedged overseas investments in the event of a UK recession.

Of course, this dynamic can move in both directions, so most asset managers will put a certain amount of ‘currency hedge’ in place to manage this risk.

UK equity

Now to UK equity. If a country is heading into a recession, it means that consumers and companies are spending less on products and services, which is likely to cause profit expectations to fall. This is the main reason why domestic shares suffer the most.

This is certainly true for mid and small cap stocks (small- and medium-size companies), as most of their revenue is generated in the UK.

It’s a bit more complicated when it comes to the UK’s largest companies, though. The companies listed on the FTSE 100 generate a lot of their earnings overseas. So when it comes to translating this profit back into the home currency, a weaker pound should automatically boost profit and thus the share price.

UK bonds

When it comes to bonds, it is much more interesting.

It’s widely assumed that there should be a negative correlation between equities and bonds. As described above, equities are underpinned by prospects of economic growth, while bonds act as a safe haven when the economic picture weakens.

An extended period of loose monetary policy and subdued inflation has relaxed the negative correlation between the two asset classes, but we expect this more distinct negative correlation to return.

There are two main reasons for this, firstly we might see a ‘flight to safety’ if investors sell their stock holdings and buy government bonds in an attempt to protect the value of their money. This higher bond demand will push up the price.

The other factor will be interest rates. It’s widely expected that the Bank of England will be willing to cut interest rates again – much like the Fed has just done – to stimulate a slowing economy.

An interest rate cut is generally good for bond prices.

For example, imagine you buy a £100 government bond that pays you a fixed 3% coupon every year. Interest rates then fall, and newly issued government bonds only offer a 2% coupon.

You still have the government bond you bought for £100 that pays you 3% interest every year. Demand for your government bond rises, taking the price you can sell it for with it.

Simply put, you’d expect bonds to do well if the UK economy weakens. However, the bond market is complex and different types of bonds are affected in different ways. If you have any more specific questions, or would like more information, please get in touch via my contact details below.

So what should you be doing?

At Moneyfarm, we firmly believe that global diversification is an effective and efficient way to manage risk in portfolios.

Investing in UK assets radically increases your exposure to UK risks. It’s highly likely that you already have a large home country bias – you probably work in the UK, own a property in the UK, or you might even have started a UK business. If so, the majority of your assets and income are closely tied to the UK economy.

By spreading your investments across different geographies, you can reduce your exposure to one economy. Then, if the UK struggles over the short-term, you can hope to offset any weakness with gains made in other regions of the world and benefit from foreign exchange movements.

When you diversify your exposure globally, it’s also less likely that you will feel compelled to make rash, knee-jerk reactions to short-term events, instead sticking to your long-term strategy.

If you know what’s going to happen, should you trade to protect the value of your investments?The problem here is timing; no-one knows exactly when moves are going to happen and they often happen very quickly – if managing your investments is not your full-time job, you could miss crucial opportunities.

If you adopt this approach, you need to be right twice. You need to both sell at the right price (high) and buy back at the right price (low).

These are notoriously difficult decisions to get right, not just because it takes a lot of time, skill and experience to identify these opportunities correctly, but because equity markets historically increase over time.

At Moneyfarm, our philosophy is based around long-term, globally diversified investments. Stock markets will fluctuate over the short-term, but riding this uncertainty out usually benefits patient investors. However, we appreciate that not everyone is able to invest for the long term, and financial situations may differ. If you have any questions or are unsure, please get in touch or speak to your independent financial adviser.

Once you’re invested in a portfolio that reflects your financial situation, appetite for risk, financial goals and time frame, avoid any knee-jerk reactions to short-term Brexit noise. Investing is all about patience.

If you’d like to discuss the impact of recent UK events on your investments or your Moneyfarm portfolio, please reach out to me directly. My email address is christopher.rudden@moneyfarm.com and my direct line is 0203 7456993.

Chris is passionate about blending technology and human expertise to help people make better investment decisions to secure their financial future. With a keen interest in the impact macro economics has on investments, Chris is a Senior Investment Consultant at Moneyfarm and recently completed the CFA Programme, passing all three levels.

Usually, car crash television is something you know you should turn off, but you just can’t. With less than two months to Brexit, UK ‘viewers’ face the inverse.

We know we should keep watching – because it’s important and unprecedented – but we just can’t face it.

It’s just been too long, too intractable and too awful. And we’ve all come to realise (at various points) that, if we’re lucky, we’ll reach not the end, not even the beginning of the end, but maybe just the end of the beginning of this sorry mess.

What’s going on?

It’s difficult to believe MPs have been back in the office for just 48 hours.

In this time, Boris Johnson has already suffered three defeats in Parliament and the slim Conservative majority he inherited with the Premiership has crumbled below him.

A bill designed to stop the UK crashing out of the European Union without a deal on 31 October is soon expected to pass through the House of Lords, before it seeks royal assent early next week.

Following the first vote on the bill, Johnson expelled the 21 rebel Conservatives that voted in favour of the motion. With a number of Conservative MPs falling on their sword – with the latest being Boris’s brother Jo – the Prime Minister knows he has little room to move.

Johnson tabled a motion to hold a General Election to break the Brexit deadlock, but failed to rally the two-thirds of Parliament required for his motion to be passed. Labour has said it will back a General Election once a No Deal Brexit has been averted.

With just two months until the UK is due to leave the EU and days before parliament is shut down, events are fast-paced, and news quickly out-dated.

Whilst our Investment Team are monitoring the events and analysing their long-term impact on markets and portfolios, we don’t believe that reactive trading to avoid short-term fluctuations is the best investment strategy to maximise returns over the long-term. Instead, stick to your long-term investment strategy and avoid knee-jerk reactions.

What does it mean for financial markets and portfolios?

The uncertainty is clear, but what do the options head of us mean for financial markets? It’s important to remember that financial assets are the product of thousands of decisions-makers – most of whom are utterly indifferent to the fate of the UK except as a source of profit and loss.

The basic shape of No-Deal seems clear, sterling is likely to suffer, long-bond yields will fall and domestic risky assets will get cheaper. The FTSE 100 usually benefits from a weaker currency, but it’s not clear how much it will in a No Deal scenario.

If moves away from a No Deal continue, we would expect to see the inverse – a rally in sterling, a sell-off in UK duration and the FTSE 250 outperforming the FTSE 100.

How Moneyfarm portfolios are prepared for Brexit

People talk about the challenges of building portfolios in such an uncertain environment. But the truth is, whenever you’re investing, you’re managing the uncertainty of the future.

It’s important to maintain the strategy you adopted when building your portfolio. For us, that’s keeping our global diversification, investing for the long-term, and avoiding knee-jerk reactions to the latest twist and turn of the Brexit saga.

Over time, our Investment Team have made some careful adjustments to portfolios to ensure they are in the right position to weather whatever Brexit throws up.

In July, we reduced our sterling exposure by around 8% in higher risk portfolios, which has supported performance. We maintained our global stance, continuing to invest in a broad range of asset classes and equity exposure.

Overall, we’re not in a rush to change our positioning for Brexit. We’ll likely make some adjustments over the next few weeks, but we’re not keen to aggressively bet on any one political outcome at this point.

Our Investment Consultants are here to talk you through every part of your investment journey. If you have any questions about the decision-making of our Investment Team or the advice you have been given, please get in touch with the team on 0800 4334574. Technology makes our advice cost-efficient, our Investment Consultants make our advisory service work for you.

Hindsight, they say, is a wonderful thing. Understanding a situation and the events that led up to it can help you make better decisions in the future. It’s always good to learn from the past, especially when investing, but hindsight bias could be doing more harm than good when it comes to your investments.

When you look back at certain points in your life, there are probably situations you would like to go back and react differently to, given half the chance.

Return to that point in time, and you might say yes to that risky job opportunity, put an offer down on your dream house more quickly, or hold onto your investments through short-term volatility.

Whilst it’s good to look back at a situation and the sequence of events that led up to it, it can be easy to assume an outcome was more predictable than it actually was.

This is known as hindsight bias, and is a behavioural phenomenon that’s particularly pertinent in the investing world.

Hindsight bias can lead to incorrect analysis of situations, and can influence behaviour in a way that can hurt investor returns in the future through overconfidence.

Hindsight bias when investing

When you invest, you want to buy an asset at a low price and sell it for a higher one. You pocket the difference as a profit, once you’ve taken out the impact of inflation and cost of trading.

When you’re managing your money for the future, you’re under pressure to spot market trends and react to them in the right way. Failing to recognise or understand market trends early enough can lead to regret, which could magnify behaviour later down the line.

Hindsight bias and the financial crisis

After the 2008 global financial crisis, for example, analysts and commentators poured over the small events, repackaging them as the obvious signposts directing investors along the road towards financial strain.

The truth is, however, if these signs were really so obvious, a financial crisis could probably have been avoided.

Hindsight is especially popular after periods of financial strain or crises. The perceived understanding hindsight brings can be more comforting in periods of uncertainty that admitting you don’t know what’s going on.

What’s wrong with hindsight?

It’s not the concept of analysis and review that makes hindsight bias a dangerous habit to form, it’s the overconfidence it brings. Overconfidence can impact your ability to make objective valuations, especially if you think you’re gifted with the ability to predict the future.

Before you start investing, it’s important you build an investment strategy that’s designed to help you reach your goals.

It’s this strategy that removes the personal hunches and gambling aspect of investing, and helps you make the right investment decisions.

Valuing an investment

To ensure your investment strategy is stringent enough to manage risk properly, you will need to:

Develop long-term forecasts for the economy and financial markets to outline the strategic asset allocation of your portfolio

Optimise this asset allocation to build a portfolio designed to reflect your investor profile, tolerance for risk and time horizon

Enhance the risk/return profile of your portfolio with a tactical overlay as part of the rebalancing process

It can be easy to get carried away with a gut feeling, but instead investment decisions should be made on data to ensure they are as reliable as possible. Analysts have stringent due diligence processes to value investments and markets and forecast returns.

Here, we outline common investment calculations used by analysts for to build financial market forecasts for equities and bond markets.

Equity

Professor Shiller’s Cyclically Adjusted Price Earnings model (PE) is a traditional valuation model that looks at an asset’s price compared to its earnings.

The simple calculation goes like this: Price/Earnings = PE

It reflects what the company is worth in regards to its earnings. There’s no one size fits all guide to the PE ratio, and different sectors have different averages.

Typically, it’s seen that a lower PE indicates an investment is valued cheaply, whilst a higher PE looks expensive. Whether the asset valuations are supported is another question.

Bonds

To estimate the returns on a debt security, many investors use the yield to maturity. This yield to maturity calculates the total expected return, including coupon payments and the final repayment of the principal, assuming it’s held to the end of its life.

Essentially, it’s the bonds internal rate of return.

Optimisation

Once you have outlined the expected returns for each asset class, it’s important to translate this information into allocation of assets in your portfolio to ensure your portfolio it built in the best way for you.

There are a number of complex calculations that go into this optimisation process, which needs to be robust to ensure you have exposure to the maximum possible return for a given level of risk.

Keeping the emotions out of investing

Reflection can help improve your investment habits, but it’s important you keep the emotions out of investing if you want to build the portfolio that’s going to help you reach your goals. Unfortunately, it can be rather difficult to achieve.

Here are four tips to cultivate your successful investing habits:

Let an expert manage your moneyIf you don’t have the time to properly manage your investments yourself, get an expert to do it for you. Thanks to low-cost digital wealth managers like Moneyfarm, this doesn’t need to be expensive.

Invest regularlyInstead of trying to time the market and regretting missed opportunities, set up direct debits to benefit from pound cost averaging and maximise your returns.

DiversificationDiversify your investments across asset classes and geographies, so you’re not reliant on one asset to do well.

Invest for the long term.
It’s well known that it’s ‘time in’ not ‘timing’ the market that can help maximise your returns over the long-term, helping you avoid knee-jerk reactions and allowing you to benefit from long-term growth trends.

]]>Why you shouldn’t panic about the prospect of a US recessionhttps://blog.moneyfarm.com/en/financial-markets/why-you-shouldnt-panic-about-the-prospect-of-a-us-recession/
https://blog.moneyfarm.com/en/financial-markets/why-you-shouldnt-panic-about-the-prospect-of-a-us-recession/#respondFri, 16 Aug 2019 17:12:52 +0000https://blog.moneyfarm.com/en/?p=7357

Uncertainty returned to markets this week after the US Treasury yield curve inverted, a notorious harbinger of recessions since the second world war.

Rising concerns that monetary policy, trade talks and slowing global growth could choke US economic growth have the markets attention. Yet there’s no need for investors to panic, as policy makers have more levers than ever before to navigate the US slipping into a recession. Knee jerk reactions could also mean investors miss out on the rally that usually follows a yield curve inversion.

What should you be doing?

Seeing the impact of this uncertainty in your portfolio can be uncomfortable and it’s understandable that you’ll want to protect the value of your investments from these fluctuations.

However, reactively trading to limit losses can do more harm than good over the long-term, and it’s important to remember that you only cement the loss in your portfolio when you press disinvest.

Typically, markets rally 15% in the 18 months following an inversion, research from Credit Suisse shows. If you’d have sold during the uncertainty of the last five yield inversions, you’d have missed out on this rally.

It’s difficult to time markets in the short-term. If you do try you need to be right twice – you need to sell at the right time and buy back at the right time. Everyone focuses on the first, but they’re both equally important when you compare to someone who focuses on the long-term and remains invested during short-term fluctuations.

These are notoriously difficult decisions to get right. If you get it wrong and miss the rebound that often happens after bouts of volatility, this can have a significant impact on the value of your portfolio over time.

For example, if you’d have invested $10,000 on 1 January 1998 and left it tracking the S&P 500 until 29 December 2017, your portfolio would have been worth $40,135, more-than double the $20,030 you would have if you missed just the best 10 days in the market. Miss a month of the best days and the value of your initial $10,000 would have slipped -0.91% to $8,331.

The JP Morgan research shows that the best days often occur within two weeks of the 10 worst days of the market, which should help investors gain confidence to ride fluctuations depending on their time horizon.

What’s happened?

Bond markets have been sending investors messages to those that have been listening of late, warning that a recession could be looming. It’s done this through falling bond yields, which have changed the shape of the US yield curve.

Falling far and fast, the yield on the US 30-year Treasury fell below 2% to 1.98% for the first time ever (apparently) this week, sliding from 3.4% in November 2018.

The US government sells debt with ‘maturities’ ranging from 1 month (bills) to 30-years (bonds). Under normal circumstances, you’d expect the yield (return) to be higher for bonds with longer maturities to compensate for the erosion of inflation and the higher risk that the government may default on its debt during longer time periods.

Put this on a graph and you’ll see a ‘yield curve’ that slopes upwards, as the yield increases in tandem with the maturity of the debt.

Yet when growth expectations weaken, there may be an inversion of the curve as long-term yields fall below their short-term siblings.

In a nutshell, a sustained inverted yield curve usually means a recession is on the horizon. This is what has upset global equity markets this week as the difference between the US 10-year and 2-year bond rates slumped to around zero before temporarily inverting.

Whilst this was a temporary inversion and not sustained, markets are now watching keenly.

‘This time it’s different’

Now, lots of people have gone through various mental gymnastics to explain why this time is different.

There are lots of uncertainties. First, the US yield curve hasn’t sustainably inverted yet, and it may not. After all, the US economy isn’t that weak.

In the US and the UK, inflation is close to the 2% target. In the case of the US, it’s certainly closer to the target than President Trump would like (which might be why he’s delayed some of those new tariffs until after Christmas).

There’s a policy dimension here too – if Central Banks start talking about a new approach to inflation-targeting using averages, which would be good for equity markets.

Second, Central Banks are likely to move much faster than maybe they did in past recessions. As long-term yields are influenced by interest rates as well as the economic outlook, a sustained inversion is a strong indication that the market thinks monetary policy is set to choke economic growth. A recession could force the Fed to cut rates again, which will boost bond prices.

Markets are certainly expecting the Fed to climb down further, and they will do what they can to make that a reality.

Then there’s the US election cycle. President Trump can blame the Fed all he likes, but the impact of trade policy on sentiment is tough to ignore. Even if he believes the US will outlast China in the long-term – what he really cares about is how we can stimulate markets and the economy between now and November 2020.

Trade tensions weighing on growth expectations

Earlier in August, the White House slapped further 10% tariffs on $300 billion of additional Chinese imports, triggering uncertainty on equity markets and increasing concern over global economic growth.

China has vowed to retaliate, despite the US delaying over half of the tariffs until after the Christmas season to protect consumers from higher prices.

It looked like an end to the trade spat was close in May, before US negotiators abruptly cancelled talks in relation to intellectual property disagreements. Tariffs escalated soon after, before a June summit between US President Donald Trump and his Chinese counterpart Xi Jinping eased tensions once again. This was also short-lived, however, as the US accused China of failing to keep to its side of the armistice.

Trump’s previous rhetoric has softened over recent days as he insisted the trade war would be short-lived. However, he’s under increasing pressure to take a tougher stance on Beijing to prevent a crackdown by the state on anti-government protests in Hong Kong.

What does this all mean for your portfolio?

We’re expecting a bumpy road ahead in the short-term, with only the US showing some resilience (outside of labour markets) in a weaker global economy.

When managing your portfolio over the next few months, our Investment Team will be monitoring the bond markets, macroeconomic data, and policy response from monetary, fiscal and trade policymakers.

As for positioning, on days like these you’d always rather have less equity exposure. But the Investment Team would have thought that in late December and we’d have suffered for it.

Today, the Investment Team are pleased that we chose to manage risk by reducing the equity exposure in our portfolios in our last two rebalances (March and October), although are still positioned to make the most of global opportunities as the arise. The team are happy with how our portfolios are positioned for the long-term risk profiles of our investors.

Our Investment Consultants are here to talk you through every part of your investment journey. If you have any questions about the decision-making of our Investment Team or the advice you have been given, please get in touch with the team on 0800 4334574. Technology makes our advice cost-efficient, our Investment Consultants make our advisory service work for you.

Moneyfarm’s guide to pensions

A pension is essentially a long-term savings plan designed to help you save for life after work. The concept is rather simple, but the pensions landscape has evolved into something more complex. Add this complexity to the negative connotations associated with saving for retirement and it’s no wonder many are put off from making the most of their pension pot.

Moneyfarm’s complete guide to pensions will give you a comprehensive overview of your options when saving for retirement.

What is a pension?

Pensions come in many different shapes and sizes, and can provide you with a pot of money to see you through retirement. You can decide how to use this money, and whether you receive regular income or lump sums.

The Office of National Statistics estimates that around 45.6 million people in the UK were members of an occupational pension in 2018. This includes people who are actively contributing to a pension, people who have contributed in the past and will receive income in the future and current pensioners who are using the money they have saved and invested.

While this sounds like a large number of people, many aren’t planning sufficiently for retirement, or don’t even know how much they have saved.

An ITV poll in May 2019 found that 60% of people have no idea how much they’ve already set aside, whilst two-thirds don’t think they‘ll have enough money for retirement. Meanwhile, 60% of people struggle to save for a pension.

It’s clear there is confusion in the pensions landscape, and that a significant number of people in the UK could be doing more to ensure they reach their dream retirement income.

What are the different types of pension?

State pension

Once you hit state pension age, the government will pay you a regular income throughout your retirement – as long as you’ve built up the required number of years of National Insurance contributions.

The state pension age is currently 65, but is scheduled to increase to 66 by October 2030 and then 68 in the future. If you reached state pension age before 6 April 2016, the most you’ll get is £129.20 a week, which adds up to £6,718.40 a year.

If you reached retirement age after 6 April 2016, you should get the new state pension of £168.60 a week, which is £8,767.20 a year. You’ll have to build up 35 years of national insurance contributions to get the full amount, although you’ll still qualify for something if you have at least 10 qualifying years.

Experts suggest you’ll need two-thirds of your final salary to maintain your lifestyle in retirement, and the harsh reality is that you probably won’t be able to rely solely on the state pension.

Workplace pension

The workplace pension is a pension scheme offered by employers to workers who are over 22 years of age (but below their state pension age) and earn at least £10,000 per year.

From April 2019, workplace pension schemes are required to pay at least 8% worth of a worker’s qualifying earnings into the pot – including the employer contribution (3%), the employee contribution (4%) and government tax relief (1%)

What is Auto-Enrolment?

While paying into a workplace pension isn’t compulsory, there have recently been some big changes in the industry to encourage more people to save for their retirement. Previously it was the responsibility of the employee to opt in to contributing to their workplace pension, but employers are now required to automatically enrol all qualifying employees, who can then choose to opt out.

Auto-enrolment has transformed the way Britons save for their pension, with over 10 million workers having been automatically enrolled onto a workplace pension scheme, while 11.5 million were already active members of one, according to research from The Pensions Regulator. Yet there is still more to do.

Defined Benefit Pension

A defined benefit pension scheme pays out a secure, regular income throughout your retirement.

The amount you get depends on a number of factors including the number of years you’ve been employed, your age and the scheme’s accrual rate – the percentage of your salary you’ll get as an annual retirement income.

Some schemes pay you in line with the final salary you earned before retirement, while some take an average of your career earnings. It is also possible to take the 25% tax-free lump sum on retirement.

Also known as a final salary pension scheme and associated with big organisations like the NHS and government, both you and your employer will pay into your pension plan throughout your career.

It’s up to your employer to ensure they have enough to pay your pension throughout your retirement. But these are expensive schemes that can put a lot of strain on companies, and many big high-street names have folded under the pressure of their pension deficit. This is why many firms no longer offer these.

Defined Contribution Pension

The most common pension scheme to save into today is a defined contribution pension. Both you and your employer pay into your pension pot throughout your working life, but unlike the defined benefit scheme, there is no guarantee to how much you get in retirement.

The amount you get depends on how much you and your employer put in, the performance of the investments in your pension, and the choices you make with your money when you retire. Unless you swap your pension pot for an annuity at retirement, you aren’t guaranteed a regular income.

There are benefits to keeping your money invested once you stop working, but you need to do your research before you do anything with your pension savings.

There are a number of important characteristics to a defined contribution pension. You can get generous tax relief on your pension contributions, and if you have a workplace pension, your employer can takes your contribution off your salary before you’re taxed.

Trust-based pension

Trust-based pensions are managed by a board of trustees who take all investment decisions on the pension – essentially all the assets of the pension schemes are held by the trust fund.

A pension trust fund will be separate to the company whose employees it serves. The reason for this is to protect the assets of the pension even if the company runs into financial problems. It’s rare for providers to offer these.

Private Pension (Personal Pension)

Also known as a personal pension, private pensions offer people more flexibility when saving for retirement and are popular with the self-employed or those who want to manage their pension themselves.

People might want to a private pension if they want to top-up their work place pension, self-employed and don’t have a workplace scheme, or if they are unemployed but can afford to pay into a scheme. These can also be popular with people who have a number of old workplace schemes but want to combine them into one put to make them cheaper and easier to manage.

The value of your pension pot will depend on how much you invest, how your investments perform and when you decide to access your savings.

As with most pension schemes, there are several ways to use your personal pension. You won’t be able to access your private pension until the age of 55. This minimum age is set to increase to 57 in 2028, and 58 after that.

What is a Self Invested Personal Pension (SIPP)?

A Self Invested Personal Pension (SIPP) is a type of private pension that offers people more flexibility when saving for retirement.

SIPPs are popular with investors looking to reach their retirement dreams, as they give you more flexibility, transparency and control over your pension investments.

The value of your personal pension depends on how much you put in it, how long you’re invested for, how your investments perform, and how much you’re charged in management fees.

Both you and your employer can pay into your pension, and you can contribute if you’re self-employed. The flexibility of SIPPs allows you to maintain your savings plan if you change jobs or stop working.

What is the Moneyfarm Private Pension?

The Moneyfarm Private Pension is a personal pension plan designed to give you financial security throughout retirement.

We provide a unique blend of digital advice and human expertise to help people grow their wealth over time. When you sign-up, we’ll ask you some questions to match you with an investor profile, by understanding your financial goals and financial background.

We then look at your time horizon and risk appetite to find you an investment portfolio that’s specifically built by our team of experts to reflect your investor profile for as long as you invest with us. A target date product, Moneyfarm adjusts your pension investments as you get older to de-risk your portfolio as you get closer to retirement.

Our Investment Consultants provide investment guidance, retirement planning and support to help you reach your dream retirement income. Why not find out how much you should be saving using Moneyfarm’s pension calculator or book a call with our Investment Consultants?

The Moneyfarm Pension allows you to transfer your old pensions for free and we will immediately pass on the benefits of the 20% government tax relief, if it applies. This means you’ll only have to pay £8,000 for a total £10,000 contribution.

If you pay a higher rate of tax, you’ll be in line for even more tax relief. Fill in your tax return form to reclaim your relief. You’ll receive your additional relief as either a rebate at the end of the tax year, a reduction in your tax liability, or HMRC will change your tax code.

When the time comes to retire, you’ll have flexible access to your pension pot.

Benefits of a pension

Tax relief on contributions

The government wants you to save for your future, that’s why there are a number of tax incentives available to those who invest in a pension. You may be eligible for tax benefits when you contribute to a pension and when you retire.

The government gives you tax relief on pension contributions relative to your income tax band. Basic rate taxpayers get 20% relief, higher taxpayers get 40% and additional rate taxpayers get 45% on their contributions.

If you’re charged the basic rate you’ll only need to pay in £8,000 for a £10,000 contribution – this is a 25% boost to your savings. At Moneyfarm the basic rate tax relief is automatically added to your pension investments.

If you’re a higher rate or additional rate taxpayer, you can claim back even more through your annual tax return.

Are retirement benefits taxable?

Once you reach the age of 55, you can take 25% of your pension pot tax free, with the remainder being used to provide you with an income throughout your retirement. You decide what to do with your tax-free lump sum, but it’s important you don’t waste it because once it’s gone, it’s gone.

The age you can access your personal pension savings will increase to 57 in 2028, and then 58 after that. It’s important to remember that the pension and tax rules can easily change, so it’s important you do what you can today to secure your financial future.

If you have no need for a big lump sum, you can choose to take your tax relief through your withdrawals instead. This is known as uncrystallised funds pension lump sum (UFPLS).

Regardless the size of your pension, if you withdrew £10,000, £2,500 would be tax free. The remainder would be taxed at your marginal rate of income tax.

Taking your 25% tax-free lump sum won’t trigger your money purchase allowance, although taking an UFPLS will. This restricts the amount you can save into your pension each year to £4,000.

It could be beneficial in terms of inheritance tax if you refuse to take your tax-free lump sum. Inheritance tax is not charged on a pension, but if you withdraw your 25% tax-free lump sum this might be counted as part of your estate and could increase the amount of inheritance tax your loved ones would have to pay.

If you die before the age of 75, your pension will be passed on completely tax free to your beneficiaries. A lifetime allowance check will be made on uncrystallised funds. If you’re over 75 when you die, your beneficiary will be charged their marginal rate of income tax on your pension savings.

Whilst you may be eligible for higher rate tax relief whilst you’re contributing to your pension, you may be charged just the basic tax rate in retirement, which will give your savings an extra little boost.

Protection if you go bankrupt

Pensions often offer greater security in the event of bankruptcy than other investments. While some people see property as a better bet, your assets must be used to pay off your creditors in the unlikely event of you becoming bankrupt, meaning you would lose that future income.

With a pension, though, you cannot have your entire pot taken away. Even in the case of bankruptcy you will be left with at least enough money to support yourself and your family comfortably in retirement. However, you may still have to surrender a portion of your pot to pay off debts.

Employer contributions

You and your employer must pay a percentage of your earnings towards your pension. How much you pay and what counts as earnings depend on the pension scheme your employer has chosen. In most schemes you’ll make contributions based on your total earnings between £6,136 and £50,000 a year before tax. Your total earnings include salary, bonuses, overtime, statutory sick pay and statutory maternity, paternity or adoption pay. You can find more information here.

Guaranteed income in retirement

Pension freedoms have unlocked new opportunities for savers looking forward to retirement, but you can still purchase an annuity with your pension pot. Buying an annuity used to be the only option for people in retirement. This is where you swap your pension pot for a guaranteed regular income, which can be a comfort with people living longer.

The income you get from your annuity is expressed as a percentage of the amount you transfer. For example, if you had £200,000 of savings and are offered an annuity rate of 5%, you’ll get £10,000 a year.

How much should you save in your pension pot?

It’s generally thought that you can maintain your standard of living when you retire with two-thirds of your final salary – you won’t have to pay for commuting, work clothes, you’ll probably have paid off the mortgage and your children will hopefully be independent by then.
That’s around £26,000 a year if you want to comfortably afford the essentials and a few luxuries along the way – you’ll be able to eat out and afford a European getaway every six months the research from consumer research group Which? shows.
If you want to have an income of £26,000 a year gross, and assuming you will have no state pension income, you’re going to need a pension pot worth a minimum of £520,000.
The logic behind this is that from a balanced and diversified portfolio, it’s reasonable to expect an average annualised return of around 5% over the long term. Assuming this is your return, if you withdraw up to the same 5% each year, you’ll never deplete the nominal value of your pension over time.
If you’ve been planning to travel more during your retirement and want to treat yourself to a new car every five years, you’re going to need around £39,000 a year. Remember, as you get older your priorities will change, and you’ll probably have to swap jet-setting for better life insurance.
For an annual income of £39,000, you’ll need at least £780,000 when you retire if you want to withdraw 5%. If you’re a bit more conservative over your expected returns and want to withdraw 4% a year, you’ll need a pension pot worth at least £973,500.

How much should I pay into my pension?

There are some simple tips to help you reach your goals of a comfortable retirement. The most important and effective thing to do is to start saving early.

The earlier you can start contributing into a pension, the longer you have to build up your pension pot.

A comfortable retirement

The Which? study showed UK households spend around £26,000 a year on average, and suggest this is around the budget most people will need for a comfortable life post-retirement.

Which? estimates that, to reach this goal, a couple in their 20s would need to save £259 a month, rising to £337 when that couple reaches their 30s, £487 when they’re in their 40s and £789 once they reach their 50s.

A luxurious retirement

Having said this, the amount you will need to save will depend on your personal circumstances. Whether you are planning on retiring at 55 or 60, for instance, will obviously have a large bearing on how much you should be putting away each month.

To achieve a more luxurious retirement, a couple in their 20s will need to save £572 a month, going up to £744 when that couple reaches their 30s, £1,075 when they’re in their 40s and £1,741 once they reach their 50s.

Extra costs

It’s important you understand the charges of your pension provider, as fees eat into the income you’ll get during retirement.When you’re receiving a service, fees are a fact of life, but you don’t want these costs to mean you miss your dream retirement income or have to work longer to reach your goals. Fees can get complicated, with surprises charges for transferring old pensions, trading, or even additional fees for accessing your money in retirement.
At Moneyfarm we believe you should know exactly what you’re expected to pay for your pension as this will impact your retirement income. We only charge a management fee at an account level, which means there are no surprise flat fees or charges for rebalancing, transferring or for meeting targets. The total cost of investing includes two further costs, the transaction cost (market spread) and fund fee, but these aren’t controlled by Moneyfarm or any provider.

How much can you put in a pension?

There are generous tax benefits to be had when you invest in a pension, but there are complicated rules, too. One is a limit to how much you can invest in your pension to receive tax relief from the government. There are two important allowances to be aware of: the annual and lifetime allowance.

Annual allowance

There’s a cap on how much you can contribute to your pension to receive tax relief each year. This limit is either your annual salary or £40,000 ‒ whichever is lower. This includes contributions from you, your employer and tax relief.

The government applies a tax charge, called the annual allowance tax charge, if the total contributions to your pension savings for a given tax year exceed your annual allowance.

Your ‘total contributions’ include all your personal contributions, any income tax relief from the government and contributions paid by your employer.

You can keep putting money into your pension, you’ll just be charged a fee. The charge for exceeding your annual allowance is set at your income tax band. This acts as if the excess amount were added to your other earnings.

If you earn in excess of £150,000 a year, this allowance is tapered. Every £2 of additional income over £150,000 will reduce the annual allowance by £1. The lowest this can go to is £10,000 for anyone with adjusted income of £210,000 or above.

Lifetime allowance

Pensions also have a lifetime allowance, which is £1.055 million in the 2019/20 tax year.

If your total pension savings exceed the lifetime allowance when you decide to take benefits or a benefit crystallisation event, a tax charge applies, called the lifetime allowance charge.

The amount of the lifetime allowance charge depends on how you take the excess benefits from your pension.

If you take the excess as a lump sum, it will be subject to a 55% tax charge. If you decide to use the excess as income, it will immediately be subject to a 25% tax charge, and your income will then be subject to income tax.

If your savings exceeded the new lower limits when introduced, you may have been able to apply for a lifetime allowance protection scheme. If you’re unsure of your annual or lifetime allowance we recommend you seek financial advice.

Money Purchase Allowance

Once you start withdrawing from your pension, you might be subject to the Money Purchase Annual Allowance (MPAA). This restricts the amount you can contribute to your pension, before a tax charge is payable, to £4,000 a year.

Whilst taking your 25% tax-free lump sum won’t trigger your MPAA, there are a number of ‘trigger events’, also known as ‘accessing flexibility’. You may enter the MPAA in one of the following situations:

Taking an UFPLS

Entering flexi-access drawdown

Going above capped drawdown income threshold

Through existing flexible drawdown

Taking a flexible annuity

How to start a pension?

These days, starting a pension of some description couldn’t be easier. Because of the rules on auto-enrolment, everybody between 22 years of age and the state pension age must be automatically entered into a workplace pension.

If you want to start paying into a personal pension, you will have to put in more research. It is important to establish what you want from your pension, as well as what you would like your funds to be invested in, how much you are prepared to pay in fees and how much you want to pay in. It takes a lot of time, money and skill to manage your pension portfolio yourself, which is why fully-managed providers like Moneyfarm are increasingly popular.

Management fees in particular can make some pensions very costly places to save your money. Unless you are confident making these decisions yourself, it is advisable to seek professional advice.

Pension Transfer

Pension transfers are becoming increasingly common amongst those saving for their retirement, as savers look for more simple ways to manage their pension pot and to save on fees.

By moving your pension from one provider to another, you can make your pensions easier to manage.

How to transfer a pension

With Moneyfarm transferring your pension is easy, free and efficient. Just fill out the required information on the transfer form and we’ll take it from there. We’ll talk to your existing provider and move your pensions over to your Moneyfarm account. This process should take three-four weeks, although this depends on your provider. For a transfer form, please get in touch with our Investment Consultants.

Should I transfer my pension?

If you’ve had more than one job, you’ve probably paid into more than one pension. As the average Brit has around 11 jobs in their career, they probably have 11 different pensions to go with it. If you’re not exactly sure what pensions you have, you can use the government pension tracing scheme set up by the Department for Work and Pensions.

There are a number of reasons why you might think about transferring your pension:

You want a different pension service to the one your provider is offering

You want to consolidate your old pensions to simplify your plan

You want to pay less in fees

You want a higher income

You’re moving abroad and want a local scheme

Some older schemes may not offer certain freedoms, like UFPLS

It can be difficult to keep on top of your pensions savings, having your pensions in a number of different places can make this more confusing. If you don’t know what you’ve got, it’s nearly impossible to understand whether you’re on track to reach your retirement goals.

Consolidating your pensions into one place makes it easier to see how your investments are performing and know exactly what you’re paying in fees at any time.

If you’re consolidating your old plans into a personal pension, make sure your portfolio is suitable for your investor profile and time horizon. This will put your money in the best position to grow for the retirement income you need. And if you’re not on track to get the retirement income you were hoping for, you can also easily identify and make the necessary adjustments you need to get there.

Pension protection?

It will be a comfort for savers to know that pension funds are well protected in the UK.

In the unlikely scenario that your pension provider will not be able to pay you what’s in your pot, the Financial Services Compensation Scheme (FSCS) could compensate you up to 100% of your pot, as long as your scheme was Financial Conduct Authority (FCA) approved.

If your defined benefit scheme cannot be paid out, there is a specialist fund which can help – the Payment Protection Fund (PPF). If the scheme you paid into was FCA approved, the PPF can compensate you for all of your losses if you’ve reached retirement age, or 90% of a capped amount dependent on your age.

Pension Withdrawal

How to withdraw money from a pension fund

You can take your 25% tax-free lump sum, and pay income tax on the rest. If you have no need for a big lump sum, you can choose to take your tax-relief through your withdrawals, known as an uncrystallised funds pension lump sum (UFPLS).

By keeping more of your money invested to grow in the market, you can end up taking more of your money tax free over the long-term. It can also be more beneficial for inheritance tax reasons. If you die before the age of 75, your family can inherit your pension tax free. Thanks to pension freedoms, you now have more flexibility with how you choose to use your personal pension savings in retirement. You can take out an annuity, opt for income drawdown, or even keep all of your money in cash – although few would advise the latter.

Although there are many schools of thought over whether annuities or income drawdown are best for retirement income, both play an important role in reliable financial planning for retirement. Historically, you could only swap your pension for an annuity, which guaranteed you a regular income for the duration of your retirement, expressed as a percentage of the amount you transfer.

As annuity rates are closely linked to interest rates, the returns offered by annuity providers have been low for the last decade. You also only get one chance to buy an annuity, unless you opt for a shorter-term guarantee. Income drawdown gives you a more flexible approach to your income during retirement. By keeping your savings invested in the market, you can dip into your money as you like. You can still take your 25% tax‐free lump sum from the age of 55, paying usual rates of income tax on the remainder.

By keeping your pension invested, you’re hoping your money will continue to grow in value to help offset the impact of inflation – although it can fall in value too. If you’ve got a number of different pensions, you might want to consolidate your savings into one place to lower costs and make your retirement income easier to manage.With a drawdown pension, your savings stay invested until you use them. You decide when and how much you want to withdraw, and are charged income tax on these withdrawals. Your tax charge will be based on the level of your income together with your other taxable income. There’s no minimum or maximum amount you need to withdraw.

Brits deserve flexibility and choice when it comes to their pension, but it’s important that savers fully understand the risks of pension drawdown. You’ll need to work out how much you need to afford the retirement lifestyle you’ve been dreaming of. Once you’ve spent your money, that’s it – you’re not guaranteed an income and will have to rely on the state pension. Income drawdown does allow you to have more control over how you plan to live your retirement, and gives you the option to dip into your funds in an emergency. But it’s important you remember that your pension needs to last as long as you do – retirement can last over three decades depending on how long you live.

There are different charges and you should always shop around to make sure you get the best deal for you and your family.

When can you access your pension?

You can access your pension from the age of 55, although you aren’t required to start withdrawing from your pension at that age. You can even start taking some benefits if you haven’t finished work, which can be helpful if you’ve had to reduce your hours and need some extra income.

Is it possible to withdraw money early?

It is possible to withdraw your pension early, but only for exceptional circumstances. If you have a terminal illness, you may be able to access your funds early depending on the rules of your scheme. If you have less than a year to live and your pension is within the lifetime allowance, then you will be permitted to take the whole pot tax-free, even if you are under 55.

If neither of these situations apply to you, you should not withdraw your pension early. It is possible, but you will be heavily taxed on everything you withdraw – up to 55% in some cases – and you could lose a large proportion of what you have saved.

Tax on pension withdrawal

Aside from your 25% tax-free lump sum, you will be charged on the rest of your pension withdrawal. Tax on your pension works just like tax on earnings – you have a tax-free allowance up to £12,500 a year, and whatever you withdraw or receive on top of that is taxed according to how much you have coming in. In some cases, it is wise to withdraw smaller amounts each year to avoid being taxed at a higher rate.

It’s important to remember that volatility is a normal part of the financial markets and can be managed in line with your investor profile. But we know the impact volatility has on your portfolio can be unnerving, especially when you’re working towards your financial goals.

That’s why we’ve pulled together this handy guide of the most common questions Moneyfarm investors ask us during market volatility, answered by our Portfolio Manager, Roberto Rossignoli.

What is volatility?

Volatility might be one of the most basic financial concepts, but it’s often misunderstood. Fluctuations in the price of an investment is important for growth, and a crucial dynamic of the financial markets.

Market volatility measures how much an asset price changes over time. High volatility means the price of an asset is likely to change dramatically over a short time frame, whilst low volatility indicates an asset’s price will be relatively stable.

Calculated in percentage points, you can measure volatility either through the standard deviation, or by comparing the volatility of an asset’s returns against the relevant benchmark – known as its beta.

What causes market volatility?

As volatility is the measurement of how much an asset price changes over time, the drivers are the factors that influence investor decision-making to buy and sell an asset.

Markets can be particularly volatile when something unexpected happens or during periods of uncertainty. For example, the shock Brexit vote in the 2016 EU referendum caused a sharp fall in the price of sterling. Sterling is still very exposed to the Brexit debate and any noise coming from the negotiation room can cause a sharp reaction on the currency market.

Currently there are some big themes influencing financial markets; Brexit, interest rates, global trade frictions, and economic growth. If you ever want to discuss the performance of your portfolio, book a call with your Investment Consultant who will be happy to discuss the market backdrop and outlook.

Should the investment team quickly change the assets in my portfolio to avoid volatility?

Timing the market is a difficult thing to get right. You need to identify the exact moment to buy and sell an asset to ensure you get the most profit you can. Nobody has a crystal ball, although to consistently time the market correctly you could probably do with one.

Volatility can make investors feel forced into a corner, and trigger a reaction that goes against your original strategy, like selling too early trying to avoid any big losses.

Knee-jerk reactions to market volatility can do more harm than good to the value of your portfolio. It’s common for asset prices to recover quickly after a temporary dip, which can leave you selling an asset for less than you bought it for.

Before you invest in an asset, you need to research its value and assess how much more you believe can be unlocked within your timeframe. If you believe in the value of your investment, short-term fluctuations in its price shouldn’t change your sentiment forcing you to sell, if anything you should be encouraged to buy.

Of course, sometimes big events can skew these fundamentals and then it’s time to make a well-thought change to the investments in your portfolio. But this should be well-researched action to a fundamental change, not a reaction to market performance.

Does high volatility lead to a rebalance?

At Moneyfarm, volatility itself doesn’t trigger the rebalancing process. Our Asset Allocation team monitors the markets and the global backdrop closely to understand how the geopolitical and macroeconomic scenario can affect our portfolios.

When our rebalances coincide with bouts of volatility, our decisions are always based on changing fundamentals, not movements on the market.

The Asset Allocation team always have the level of risk you are comfortable with in mind when monitoring portfolio performance. To understand the level of risk, the team back-test the volatility over different historical periods for comparison and make necessary adjustments.

Is market volatility good/bad for my investments?

To make a profit on an investment, you need to sell an asset for higher than you bought it. Volatility provides you with the market dynamics to do this, if you keep to your strategy.

Of course, volatility can be bad for your investments, although it’s important to remember that if your portfolio is down, you haven’t physically lost any money until you hit the sell/disinvest button.

This is why it’s important you invest in the way that reflects your financial habits, priorities and risk appetite. If you’re happy to take on risk as you have a long-term time horizon, you can invest in riskier assets with the hope that you’ll benefit from greater growth over the long run.

If you have a shorter time horizon, it’s better that you reflect this in your portfolio’s risk level. Although you will restrict your growth potential, you’ll also limit downside risk.

Understanding your risk appetite and how to reflect this within the investments in your portfolio can be a difficult thing to get right. At Moneyfarm we do it for you with our investment advice.

By completing our investor profile questionnaire we match you with an investor profile that outlines your risk appetite. We then pair you with an investment portfolio that’s specifically built and managed by our investment team to reflect your investor profile. These portfolios are then regularly rebalanced to make sure they continue to reflect you for as long as you invest with us, free of charge.

Should I take my money out or invest more during market volatility?

Although volatility looks bad on your portfolio, you haven’t physically lost any money until you hit the sell/disinvest button, as explained above. Once you disinvest, you agree to sell your asset for a lower price than you bought it for.

Trying to avoid losses by timing the market to sell your investments can be a dangerous game to play that leaves you financially worse off. Common performance patterns show stock prices recovering after falling in value, which can mean you sell it for less than you bought it for.

You could see weaker prices as a buying opportunity and decide to invest more. By getting the asset at a better value you could maximise your profit. As volatility is a measure of price movements both up and down, this strategy involves timing the market again, which can be difficult to do in times of volatility.

If you’ve set up a direct debit, you can carry on as normal. By investing little and often, you can smooth out the price you pay for an asset over time, reducing it during periods of volatility, helping you maximise your return. By setting up a regular investment, you can ignore market noise. Whilst it can often feel like many things on the financial markets are out of your control, removing bias is something you can influence.

To set-up a direct debit, log-in to your account and go to ‘Add Money’ or you can book a call with an Investment Consultant here.

How is my portfolio designed to mitigate market volatility?

Moneyfarm provides you with investment advice so you know you’re investing in a portfolio that reflects you and your risk appetite. Your portfolio is built around your investor profile, so riskier portfolios have a higher exposure to equities, for example.

Our Asset Allocation team will work to manage the risk in your portfolios through diversification. Investing in a broad range of investments, assets classes and geographies might seem simple enough, but getting the right mix to help you reach your goals can be difficult.

In a diversified portfolio, any fall in one asset class should be offset by better performance in another. Whilst evidence suggests that it’s difficult for active stock pickers to consistently outperform the market over time, a diversified portfolio is typically better insulated against downside risk.

At Moneyfarm, we believe a diversified portfolio is likely to create the best outcomes for our investors and our portfolios typically hold seven-14 exchange traded funds (ETFs), diversified across geographies and asset classes.

Should I change my portfolio’s risk level?

Your investor profile and risk level is based on you, not the external environment. By building your portfolio to reflect your appetite for risk, you can help mitigate external risks better than having a reactionary investment strategy.

We do know that circumstances change and your tolerance for risk may increase or decrease over time. That’s why our ongoing suitability algorithms run once a month or whenever there are any big changes to your portfolio. If we think you need to change we will suggest this to you when you log-in.

How is the performance of my portfolio calculated?

Your portfolio performance is calculated using a money-weighted calculation. We believe this gives you a more accurate picture of the true return you received as an individual, accounting for your individual cash flows – these could be dividends, account top-ups or disinvestments.

If you were to invest – or disinvest – an amount from your portfolio, this impacts the performance number. Technically speaking, this measure of performance corresponds to a well-known concept in finance called the internal rate of return (IRR). We compute the IRR of your portfolio every day.

There are a number of different ways to calculate performance, and we’re looking to show multiple ways in the future. This may include Time Weighted Performance.

If you have any questions about the way we calculate the performance of your investments, book a call with an Investment Consultant today.

What’s a correction?

A market correction is a 10% decrease in the price of an asset, that seemingly works to fix an overvaluation. Whilst a double-digit drop in the value of a portfolio isn’t pretty in the short-term, corrections are generally seen as good for the market and investors.

Market corrections are seen as good opportunities for seasoned investors to pick up high value assets at discounted prices, and can be a welcome wake-up call for more novice investors to ensure their portfolio reflects their risk appetite.

Common on the financial markets, US markets experienced 38 corrections between 1980 and 2018, according to Investopedia.

What are bull and bear markets?

The bull and bear are important elements of the financial markets. Bull and bear markets coincide with the four stages of the economic cycle: expansion and peak, followed by contraction and trough.

A bull market, or bullish conditions, describe a market where prices are rising or expected to rise. It symbolises financial optimism, investor confidence and prosperity.

The beginning of a bull market can generally be seen as an indicator of economic expansion, as perception on the economic outlook drives stock prices.

The bear market, or bearish conditions, describe a market where prices are falling. Widespread pessimism can whip up negative sentiment, which can become self-fulfilling. Bear markets can be seen as precursors of economic contraction.

Bearish people may want to sell their investments or take short positions in the market. Figures can vary, but it’s widely considered that a downturn of 20% or more over at least two months signals the beginning of a bear market.

It’s important to note that this 20% is just a threshold we’ve imposed to define market movements. When a market loses 20%, nothing particular special happens. In fact, markets can bob in and out of a bear market for some time.

What strategy should I take in market volatility?

Market volatility can be unnerving over the short-term, but it’s important you stick to your long-term investment strategy to avoid any potentially painful knee-jerk reactions trying to escape to cash.

Below are five tips to ensure that even in periods of volatility you’re in the best position to reach your goals over the long-term.

Invest in the right way for you – Get cost-efficient investment advice to ensure your portfolio reflects your financial background, personality and risk appetite.

Understand what you’re investing in – To ensure you don’t react to market movements but the underlying value of your investment, know an asset in inside-out before you invest in it. Understand how much it’s valued now, how much you expect it to grow in your time horizon, and know the risks. This takes a lot of work to do yourself, which is why many prefer the experts to do it on their behalf through discretionary management.

Diversification – Manage specific risks by diversifying your investments across assets, sectors and geographies. Diversification can be a difficult thing to get right yourself, but you hope to offset any losses in your portfolio with gains made from other assets, smoothing out performance.

Invest for the long-term – Many investors look for the elusive edge on the financial markets, when all they really need is time. By adopting a long-term approach, investors can ignore any short-term noise and look to benefit from long-term positive trends.

Set-up a direct debit – Invest little and often to benefit from pound cost averaging during volatility. By averaging out the cost you pay for an asset over time, you can lower the price and maximise your profit.

Moneyfarm’s guide to ISAs 2019 What is an ISA? An ISA is a type of savings account that allows you to grow your money in a tax-efficient manner. It’s a simple scheme set up by the government to help savers and investors make their money go further. Moneyfarm’s comprehensive guide will tell you all you […]

What is an ISA?

An ISA is a type of savings account that allows you to grow your money in a tax-efficient manner. It’s a simple scheme set up by the government to help savers and investors make their money go further. Moneyfarm’s comprehensive guide will tell you all you need to know about ISAs.

What does ISA stand for?

ISA stands for Individual Savings Account.

Tax-free savings

The Individual Savings Account (ISA) was introduced by the government to encourage saving and is designed to make growing your money for your future easy.

An ISA is a simple account that protects your savings and investments within a tax wrapper. This means that any returns from a savings account or your investments, and any income, will be shielded from the taxman.

Whenever you save or invest money you could be eligible to pay tax on your returns. If you pay the higher rate of income tax, you’re eligible to pay capital gains tax of 20% on the profit you make when you decide to withdraw that money. Everyone has an annual capital gains tax allowance of £12,000 in the 2019/20 financial year.

You could also be eligible to pay tax from any income you receive on your investments. The tax rate depends on whether this is generated as a dividend from equity investments or interest from fixed income.

If you invest in an ISA, however, you won’t pay a thing in tax.

For example, imagine you invest £20,000 – the full ISA allowance – into a general investment account for 20 years, splitting it into monthly payments.

If your investments return 3% each year, you could have a pot worth over £547,000. If you pay the higher rate of income tax, you would have to pay over £27,000 of your money in tax when you sold your investments. If you invested in an ISA, you would keep every penny of your £147,000 profit.

How does it work?

An ISA is best described as a wrapper that protects your savings and investments from the taxman. Whether you decide to save or invest, all of the interest, income and capital gains generated from the money you put in your ISA can grow tax-free.

The annual allowance for 2019/20 is £20,000, which means you can put up to this limit in your ISA each tax year. The tax year runs from 6 April to 5 April the following year.

There are two main types of ISAs: the cash ISA and the stocks and shares ISA. You have several other options to choose from too, including the lifetime ISA, junior ISA and innovative finance ISA.

A cash ISA allows you to build up your savings in a tax-efficient manner. When you save money in a cash ISA, your provider pays you interest on your savings, which is tax free.

A stocks and shares ISA allows you to invest your money through the ISA wrapper, shielding any returns from tax. Making the most of your annual allowance each year can help you maximise your returns over the long run.

You can invest or save your allowance in as many different types of ISAs as you like, but only in one of each type each tax year.

This means you can put £10,000 of your £20,000 limit in a stocks and shares ISA and £10,000 in a cash ISA, but not split this across two different stocks and shares ISAs.

If you’ve already started investing in a stocks and shares ISA in a tax year but want to move, you can transfer your ISA to a different provider, but this will close your original ISA account.

How much can you put in an ISA?

ISA Allowance

The ISA allowance is £20,000 for the 2019/20 tax year. This means you can invest up to £20,000 in your ISA and any returns on this money will be tax free. Remember, you can spread your £20,000 allowance across a mixture of different ISA types.

When it comes to investing in your ISA you have two options: use it or lose it. If you don’t invest as much of your £20,000 ISA allowance as you can before the new tax year on 6 April 2020, you’ll lose any unused allowance. This can make a real difference over the long-term.

The ISA allowance is reviewed each tax year. It increased to £20,000 in 2017 from £15,240, and will remain at this level throughout the 2019/20 financial year. When introduced in 1999, the ISA allowance was just £7,000.

The biggest change to the ISA rules came in 2014, when restrictions to how much you could invest in a cash and stocks and shares ISA were relaxed. Ever since, Brits can split their ISA allowance in the best way for them.

2019 ISA deadline

The deadline for the 2019/20 tax year is midnight on 5 April 2020. As the ISA allowance does not roll over, your money needs to be in your ISA account by this cut-off, or you will lose your ISA allowance for that tax year.

The annual ISA allowance is set by tax year, so you have from 6 April to 5 April the following year to invest your £20,000 ISA allowance.

Can you split your ISA allowance?

Since 2014, rules on splitting money between different types of ISAs have been relaxed. It is now possible to pay the entire £20,000 allowance into a single type of ISA or a mixture of them all. However, you are not able to pay into more than one of the same type of ISAs in the same tax year (two different stocks and shares ISAs, for example).

Types of ISA

Cash ISA

A Cash ISA is like an ordinary savings account, without the tax. There are different cash ISAs to meet different needs, such as instant access and fixed interest rate. You can open a cash ISA with most high street banks and building societies, but you’re only allowed to put money in one cash ISA each year.

Although cash has traditionally been viewed as a ‘safe’ place to keep your money, the low returns available on easy access cash ISAs mean your money is probably losing value to inflation rather than growing for your future.

This is why more Brits are looking to the financial markets to protect their money. However, if you have a short-term horizon or want to take on less risk, this may be the most appropriate ISA for you.

If you are choosing a cash ISA provider, you should consider any hidden fees for transferring or withdrawing your money early, as some fixed-term cash ISAs will charge for this.

Stocks and Shares ISA

If you’re looking for a simple, tax-efficient way to grow your money on the financial markets, a stocks and shares ISA is probably for you.

You won’t have to pay capital gains tax on big profits, and the interest earned on your bonds or dividend income will also be free from tax. You can only pay into one stocks and shares ISA each tax year.

Stocks and shares ISAs can in theory hold a wide range of investments, including company shares, bonds, investment trusts and funds – although this will depend on your provider. Some stocks and shares ISA providers let you manage your ISA portfolio yourself, picking exactly which investments to hold and when to buy and sell them.

This suits many investors, but it takes a lot of skill, time and knowledge to manage your investments in line with your appetite for risk and investment goals. This is why many investors choose to have the experts do it for them instead.

Wealth managers like Moneyfarm provide fully-managed portfolios that are built and managed in line with an investor’s appetite for risk. Advancements in technology mean this can be delivered at a lower cost than before. It’s important to shop around to ensure you’re getting the best value for the service you need – a wealth manager who does everything for you will likely be more expensive that a provider who makes you do it all yourself.

Moneyfarm Stocks & Shares ISA

The Moneyfarm Stocks and Shares ISA is a flexible and fully-managed stocks and shares ISA and offers a range of benefits for anyone looking to truly make the most of their ISA allowance. At Moneyfarm we blend the low-cost investing and simplicity of a digital adviser with the personal relationship and guidance of a traditional wealth manager.

Our digital advice, human investment guidance and fully-managed portfolios put our customers in the best position to reach their financial goals, whether that’s through an ISA, pension or general investment account.

We keep our fees low, leaving you with more of your money, and we will never charge you for transferring to our ISA. Find out more about the Moneyfarm Stocks & Shares ISA today.

Lifetime ISA

The lifetime ISA (LISA) is designed to help people under the age of 40 save for their first home or retirement.

The advantage of a LISA is simple – the government will pay you a bonus of 25 pence for every pound you pay in up to the limit of £4,000 a year – but the rules around these ISAs can be complicated. Some of these rules include:

You can only open a LISA if between the ages of 18-40.

You cannot pay into a LISA after you turn 50, although you can still allow your money to accrue interest.

The savings pot can only be used to buy a first home, for retirement from the age of 60, or if you are terminally ill, otherwise it’s locked up.

If you withdraw your money early, you will be charged 25% of what you take out. This means you would get less than you had initially put in if you access your money early.

The property you purchase with LISA savings must cost under £450,000 and it must be bought with a mortgage. You also must not own a property already.

The LISA counts towards the £20,000 a year ISA limit.

In terms of saving for retirement, it is important to assess whether a LISA or a pension is the best option for you. Pensions often offer more benefits and more protection, although you can have both. Discover more about the Moneyfarm Private Pension.

Help to Buy ISA

The help to buy ISA is similar to a LISA. A type of cash ISA, you can make an initial deposit of £1,000 and then save up to £200 a month (£2,400 a year). You can receive a 25% bonus on savings up to £12,000, which equates to five years of saving if you put away the full amount each month. This means you could get up to £3,000 from the government, for free.

The opportunity to open a help to buy ISA will soon be over. They won’t be available to new savers after 30 November 2019, although existing savers will be able to keep saving into their account. However they must claim the government bonus before 1 December 2030.

Innovative Finance ISA

To encourage peer-to-peer lending and improve competition in the banking sector, investors who lend to companies can enjoy tax-free income through an innovative finance ISA (IFISA).

If you want to invest in a small business, you should look to use an innovative finance ISA to protect your returns from the taxman.

The IFISA is designed to boost investment in small businesses – you can earn up to 6% interest tax-free when you invest through this ISA. Much like being a bank manager yourself, you loan to people and fledgling businesses.

If all goes well, they’ll pay you back over time with interest. If they don’t, you could lose your money.

There are very few IFISAs on the market. With the possibility of higher returns also comes greater risk – with peer-to-peer lending you’re essentially taking on the gamble and loaning to businesses that large banks won’t. If you want to access your money at short notice, you could take a hit, as these are certainly long-term investments. Your cash won’t be protected by the Financial Services Compensation Scheme (FSCS), either.

Junior ISA

If you want to save for your child or a family friend under the age of 18, you can put up to £4,368 in a junior ISA each year. Much like the adult ISA, savings can go in either a cash or stocks and shares ISA, or be split between the two.

It is also important to remember that as soon as your child turns 18, the money will be theirs to use. Parents should be sure to do sufficient research to determine if a junior ISA is the right place to save money for their child’s future. Children born between September 2002 and January 2011 must convert their Child Trust Fund (CTF), which they were automatically enrolled in at birth, before they transfer to a Junior ISA . It is no longer possible to open a CTF.

ISA Frequently Asked Questions

ISA vs. Savings Accounts

The decision over whether to save money in a savings account or an ISA depends on your financial situation and goals, and when you want to use your money. It’s important you understand your investor profile – which acts like your investor DNA – before you decide where to put your money.

If you’re investing for the short-term, it’s probably more appropriate to keep your money in a cash ISA. Your savings won’t grow by very much, but you should protect the value of your money from any short-term swings in the financial markets. You want to avoid taking your money out of your account when it’s fallen in value.

If your time horizon is over two years, you might want to think about investing in a stocks and shares ISA. What you invest in will depend on your investor profile – if you’re a risk-averse investor that wants their money in five years, you’ll take on less risk than someone who is investing for retirement in 30 years and is happy to take on more risk. After all, the longer you have to invest the more risk you can take with your investments, as you should be able to stick out any short-term fluctuations in the markets.

What are the benefits of an ISA?

As this guide has demonstrated, ISAs hold a variety of benefits. To summarise, these include:

Generous tax benefits – This is the big one. The freedom to watch your money grow without being taxed is a major advantage.

Flexibility – The choice and flexibility of transferring between different types of ISAs gives Brits better control of their money.

Free and easy transfers – Improvements in the industry have made transferring between different provides easier, quicker and hassle-free. With a company like Moneyfarm transferring is free.

Inheritance tax benefits – Being able to pass on your ISA to your beneficiaries tax-free is a big draw for many.

What happens if you take money out of your ISA?

The rules for withdrawing money differ depending on what kind of ISA you’ve paid into.

Stocks and Shares ISA – You can withdraw money and return it within the same tax year. Make sure you know any fees you might need to pay for withdrawing money from your ISA, at Moneyfarm there are none – just a simple management fee and underlying fund fee.

Fixed rate cash ISA – These offer more competitive interest rates in exchange for keeping your money locked up for a certain time period. Withdrawing early will usually incur a penalty charge.

Easy access savings ISA – This type allows money to be withdrawn and returned freely, although usually at the cost of a lower interest rate.

How to open an ISA

Opening an ISA is simple and pain-free. All you need to do is follow the six easy steps below:

1. Discover your investor profile – your financial situation, risk appetite and time horizon will influence what type of ISA you put your money in (stocks and shares or cash, for example)

2. Research the best ISA for you – comparison sites are a good place to start to compare different ISAs to ensure you’re getting the best deal, whether that’s around fees, wealth management service, returns or interest rates

3. Open an account – Opening an account is simple and can usually be done in under 10 minutes. It requires basic information like your National Insurance number, tax information, bank details and the required amount of money to meet minimum thresholds.

4. Build the right investment portfolio – If you decide to invest in a stocks and shares ISA, it’s important you build your portfolio with the right investments for your investor profile and financial situation. At Moneyfarm we recommend the right ISA portfolio for you, built and managed by our experts to help your money grow.

5. Add money to your account – Add money to your ISA by a lump-sum, by setting up a direct debit, or transferring an old ISA

6. Run regular ISA check ups – Make sure you regularly check your ISA is still the best option for your financial situation and financial goals. This might change over time, and you might find yourself using a blend of different ISA types at different stages of your life

Transferring an ISA

Is the return on your ISA lower than inflation? The purchasing power of your savings could be shrinking over time. You might want to think about a stocks and shares ISA

Not finding the time to manage your money? Or you could be missing out on the important things in life because it’s taking you hours to manage your savings or investments. A provider like Moneyfarm that does it all for you.

Are fees eating into your returns? Your ISA could be costing you a small fortune or you’re not even sure what you’re paying. Fees should be simple and low-cost.

You can transfer any type of ISA to Moneyfarm, whether it’s a cash ISA or a stocks and shares ISA. If you’re transferring an ISA in the same tax-year, you’ll have to move the whole thing, with older ISAs you can choose how much you want to transfer.

It can take up to 30 days to transfer your stocks and shares ISA from your existing provider to Moneyfarm. We won’t charge you a thing to transfer in or away from Moneyfarm, but your existing provider might.

The Moneyfarm Stocks and Shares ISA will always be low-cost and flexible, so you can keep more of your money. You’ll also be able to dip in and out as you need throughout the tax year without incurring withdrawal fees.

Moneyfarm Stocks & Shares ISA

Opening a Moneyfarm Stocks and Shares ISA couldn’t be easier. Simply create an account and fill in your details; from there we will determine your investor profile and match you to the right portfolio for your needs.

What’s more, if you are transferring from another provider we won’t charge you a penny.

Our ISAs are popular with investors because they are flexible, cost-efficient and fully-managed. Moneyfarm blends digital advice with human guidance to put our investors in the right position to reach their investment goals. Fully transparent, our investors always know what they are invested in, their performance and how much they are paying.

Can I open an ISA for someone else?

In most cases you will not be able to open an ISA for someone else. A parent can open a junior ISA for their child and pay into it each year. However, at the age of 16 the child will have control over the ISA and when they turn 18 it will become theirs to use, converting to a regular adult ISA.

The only other scenario in which you would be able to open an ISA on someone else’s behalf is if they are unable to do so themselves due to, for instance, disability or old age, and you have the legal power to make financial decisions on their behalf. If you’re unsure, please speak to your independent financial advisor or call Moneyfarm’s Investment Consultants on 0800 433 4574.

Monitoring the markets on your behalf, our Asset Allocation Team help you stay one step ahead. Here, Richard Flax discusses what impact Britain's new Prime Minister Boris Johnson will have on Brexit, growth and financial markets.

After months and months of nothing to report, we finally have a flurry of activity in the UK. We have a new Prime Minister, we have a new cabinet, and the probability of a No Deal Brexit seems to have risen sharply.

We continue to believe that a No Deal Brexit will be negative for UK growth and for a number of UK sectors. The question is, how likely is that to happen? That’s still unclear. The Prime Minister is talking an aggressive game, perhaps to kick-start negotiations with the EU.

There’s an old line that says the politicians campaign in poetry but govern in prose. We can certainly say that Boris Johnson campaigned in poetry, but so far he seems to be doing the same thing in government.

Now, some of that is clearly for the benefit of his domestic audience and also perhaps for the audience in the European Union, but at some point that poetry has to translate into proposals.

So far, the EU is sticking to its guns; there’s no deal but the one on the table, the backstop is sacred, and we really don’t have much room to manoeuvre. Once all the initial noise has quietened down, we’ll see if this is the whole truth, but we have to recognise that after a couple of years of negotiations, there simply may not be an alternative to what is on the table.

The UK government will then have a decision to make, does it back down or really take this to a No Deal on 31 October.

What does this mean for financial markets?

We expect we’ll see downgrades to GDP growth in the UK and perhaps to a lesser extent in parts of the eurozone.

We’ve already seen sterling slide in the last couple of weeks, with the pound weakening, particularly against the dollar. Over the last couple of years, the uncertainty around Brexit has weighed particularly on business sentiment and business investment. The severity of the impact varies by sector, but overall, the trend is down.

From a markets perspective, there are a couple of implications. The FTSE 100, the large-cap UK equities index, has a significant global exposure – over 70% of its revenues come from overseas. This means it’s a relatively good hedge, up to a point at least, against sterling weakness.

The mid-cap space, middle-sized companies that are listed, are a bit more domestically focused and we’d argue it’s here that you see greater risk to earnings, corporate profitability, and perhaps to valuation.

Staying power

Boris Johnson has been dismissed as a number of things: ill disciplined, lacking in attention to detail, and unserious – and these are criticisms that have been levelled at him throughout his career, even as he’s climbed the greasy pole of politics to Number 10 Downing Street.

We should also remember though, firstly, that he’s had significant staying power in the face of a number of setbacks over the years and, secondly, he’s not alone. He has a number of advisors, a number of supporters, a number of colleagues who have both the brainpower, the discipline and the focus to drive the UK towards their preferred outcome, be it a new negotiated settlement or a No Deal Brexit.

Why bond market is more interesting

The bond market is maybe more interesting. In the event of no deal, we’d expect to see bond yields fall, driven by concerns about UK growth.

We expect to see government spending increase to try and offset some of the impact of No Deal. The Bank of England is also likely to make sure that financial stability is maintained and that there’s sufficient liquidity in the system. Overall, however, over the next 12-18 months, in the event of no deal we’d expect those yields to decline.

Fed cuts rates

It might surprise some to see there’s more going on in financial markets than just Brexit. This week the Federal Reserve cut interest rates for the first time since the Great Recession, although the Central Bank took pains to point out that in their view this was just a mid-cycle adjustment, rather than the start of something more meaningful. That left financial markets feeling a little uncertain.

At Moneyfarm, we expect to see another 25-50 basis point cut from the Federal Reserve over the next six to nine months, but not much more than that.

The US economy, although it has slowed a little bit, remains relatively healthy, particularly on the employment side and a couple of interest rate cuts should be enough to ensure the long, slow expansion that we’ve seen, the longest on record, is able to continue.

Moneyfarm has been named the Best Direct SIPP Provider at the 22nd annual YourMoney.com Awards.

The longest running consumer finance awards in the UK, the awards are split into two categories; ‘Best Direct’ awards for products and services offered by phone, and ‘Best Online’ for those provided electronically.

We’re thrilled to win such a prestigious award for the high quality service provided by our Investment Consultants on the phone, in person, or via email.

Our Investment Consultants provide a unique blend of investment guidance, retirement planning and support to help our customers reach their dream retirement income. Some of the services our Investment Consultants can provide include:

Retirement Planning

External Portfolio Reviews

Guidance on accessing your pension

Consolidation guidance

Market Insight

Support on account details

We’re especially proud as all entrants are subjected to a rigorous judging process based on competitiveness of price and structure. Shortlisted firms are then judged by a panel of readers who mystery shop each company and benchmark the quality of service provided in each product area.

Chief Executive Giovanni Daprà said: “I’m proud of how Moneyfarm is challenging the misconception that having a high quality human relationship with your wealth manager is a preserve for the few, not the many.

“It’s an honor to win this award and to be recognised for our unique blend of technology and human expertise provides consumers with a service that helps them make better decisions with their money, and ultimately reach their goals. We firmly believe that our hybrid approach will truly help to enhance the long-term financial security of investors across Europe.”

Moneyfarm was founded by Giovanni Daprá and Paolo Galvani to transform the relationship people have with their money after they realised the lack of transparency and high costs many faced looking to manage their wealth.

Joanna Faith, YourMoney.com editor, said: “Our awards are judged by the people who really matter, the customers, so all the winners should be incredibly proud of their achievements. They have shown they are the best of the best in their sector. A big congratulations to you all.”

Why choose a Moneyfarm Pension?

The Moneyfarm Pension offers the low-cost investing and simplicity of an online service, with the personal relationship and guidance of a traditional wealth manager.

The second quarter rather caught our eye, as we monitored how the global stage reacted to fraught geopolitical tensions and a mixed macroeconomic bag with signs of both resilience and fragility.

Global equities unwound slightly in May, as a freeze in US-China trade negotiations caused valuations to temporarily drop. However, the pullback was brief, thanks to both China and the US reviving trade talks.

More than a decade on from the 2008 global financial crisis, the US is enjoying its longest uninterrupted stretch of economic growth on record. Interestingly, this cycle now has lasted longer than The Beatles were together and is older than Instagram (thanks to Invesco’s Brian Levitt for this trivia).

Can this cycle last forever?

Of course, there are still challenges to navigate in the short-term. The momentum behind the phenomenal equity run of the past decade cannot be maintained forever. We all know that. The economy has already started to tire and any sign of a slowdown in economic and corporate earnings growth could cause financial markets to bite.

Record low levels of unemployment is finally driving wage growth higher in the US, increasing the disposable incomes of US consumers. But this comes at a higher cost for US companies, who are already battling to reverse weak productivity. The result is a slight erosion of profit margins which, if sustained, could weigh on earnings over time.

During the quarter, Central Banks made it even clearer that they weren’t going to tighten monetary policy and have indicated that they’re ready to loosen policy as needed to avoid choking economic growth. (The Fed has since made its first interest rate cut since the Great Recession).

Satisfied with this new rhetoric, markets rebounded, but the question is now whether the Fed is willing to cut interest rates enough to meet aggressive market expectations.

Central Banks step back

In our last Quarterly Report we noted how the Federal Reserve had eased back from its aggressive approach to rolling out its monetary policy programme.

In the second quarter, the Fed and European Central Bank distanced themselves further from their previously stubborn resolve, following a series of weaker macroeconomic data, stagnant inflation, and an uncertain trade outlook. Policy makers are now poised to unlock further monetary stimulus if the economy calls out for it.

The extraordinary period of economic expansion is hiding pockets of weakness, with world trade and manufacturing sectors in the doldrums. Yet these areas of weakness are so far just a dent in the wider momentum behind the US economy.

A tough balancing act

For the Fed, the priority is mitigating the risk of a recession and a further decline in the pace of inflation, with the PCI currently sitting at 1.8%. As ever, the Central Bank has a tough balancing act, as cutting interest rates too soon could cause the economy to overheat.

Markets expect the Fed to cut rates in its July meeting, and again before the end of 2019. Fixed income markets are currently pricing in a 75 basis point cut to interest rates over the next 12 months – although there may be an element of investor overconfidence in that outlook.

The move by Central Banks to distance themselves from their previous aggressive rhetoric has supported risky assets, such as equities and credit. Driven by the prospect of consumers and governments loosening purse strings, risky assets rallied along with traditional ‘safe havens’ like Developed Market Government Bonds, Gold and the Japanese yen.

Equities had another powerful ally in this quarter, with the European Central Bank’s (ECB) Mario Draghi also supporting looser monetary policy. Lacklustre economic growth and low inflation is likely to encourage the ECB to either maintain low interest rates, or introduce negative rates to encourage investment during a recession.

What low interest rates mean for investors

This lower interest rate environment has had wide implications for the financial markets over the last decade. It has contributed to higher levels of corporate borrowing and encouraged many investors into riskier assets in the search for a higher return.

Most Central Banks have limited tools at their disposal in a low-rate environment, when government borrowing costs are low. The temptation to engage in more active and expansionary fiscal policy will increase further.

Markets are not only pricing in Fed and ECB interest rate cuts this year. ECB quantitative easing is on the cards. This environment will support both risky assets and safe havens like Developed Market Government Bonds.

Essentially, markets are making a big bet that Central Banks will do what they can to keep this expansion alive. Time will tell if this is the right bet to make.

The will-they won’t-they of trade talks

The interesting question it whether it is the Fed or the markets that currently hold the power in this environment. We feel the Fed has been muscled into a rate cut by financial markets, and Trump isn’t too happy about the dynamic.

After reaching a temporary truce with Chinese President Xi Jinping at the G-20 summit in Japan, Trump declared that the US was winning the trade war. He couldn’t help adding that the Federal Reserve “has not been of help to us at all”.

“Despite that, we’re winning, and we’re winning big because we have created an economy that is second to none,” he added.

Yet there is still a lot of uncertainty as to how the two countries will proceed in negotiations from here. As the second quarter has shown us, it doesn’t take much to swing the pendulum the other way.

There are some key takeaways from the G-20 meeting that are worth remembering:

The US said it would hold off indefinitely on introducing the tariffs it had planned, as long as:

China committed to an additional $30 billion in imports

Allowed US companies to continue to do business with China’s Huawei

China signalled to Wall Street that it’s open for business, removing foreign ownership limits on financial firms a year ahead of schedule. Full control of securities companies, futures businesses and life insurers will be allowed by 2020.

The dispute is far from over.

China’s economic power is growing and its ambition to establish a global sphere of influence (through the Belt and Road Initiative) could disrupt the established geopolitical order, so far dominated by the US.

Irrespective of the final trade dispute outcome, the collision between the two superpowers is likely to lead to continuing economic and political tensions over the coming years.

The recent escalation of trade tensions shows that there is much more to Trump’s strategy than simply reining in Chinese mercantilism.

The US is engaged in a battle with China for economic and geopolitical dominance. It is a classic battle between an emerging power and the status quo. History doesn’t paint a reassuring picture of how these may be resolved.

China is emerging to challenge America’s global influence in a number of areas such as business, technology and capital markets. The dispute is made even more complicated because China and the US, and those who deal with them, are now interdependent. This interdependency could be a vulnerability or a weapon – depending on how they use it.

Interestingly, this power shift is likely to cause populist parties to reject international politics and policy-making further. Europe could see populism intensify, for example, as it battles against low economic growth, near-zero inflation and low interest rates.

June drives the quarter to growth

Overall, the second quarter was kind to a wide range of asset classes. This was thanks to a strong rebound in June. Developed and Emerging Market Equities ended the three months in green territory, even if the latter was impacted by trade spats during the quarter.

The notable laggards were China and major Asian markets (Hong Kong, Singapore, South Korea and Taiwan) in the emerging space and Japan in the developed arena – essentially countries that are seen to be directly linked to the slowdown fuelled by Chinese and US trade activity.

Commodities were the only asset class on our radar to post negative returns. These suffered from weakness in Industrial Metals and Energy, driven by lower growth and lower inflation expectations.

Bond and Equities have puzzled investors this year, with the S&P 500 reaching historical highs and US government bond yields record lows – which means the ‘price’ of bonds has reached a record high due to fixed income’s inverse dynamic between its price and yield.

Focusing on short-term sentiment, Equity markets are digging in their heels and refusing to get off the ride. Bonds on the other hand are pricing in the new trajectory of both the economy and the impact of the Fed’s (more cautious) pact.

Monitoring the markets on your behalf, our Asset Allocation Team help you stay one step ahead. Here, Richard Flax discusses how monetary policy and trade tensions have impacted the financial markets, and what recent troubles at Woodford have taught us, again.

Monitoring the markets on your behalf, our Asset Allocation Team help you stay one step ahead. Here, Richard Flax discusses how monetary policy and trade tensions have impacted the financial markets, and what recent troubles at Woodford have taught us, again.

At the end of May, markets were focussed on two main areas of concern. The first was around monetary policy; would the Federal Reserve in the US be able to cut rates enough to satisfy some fairly aggressive market expectations? And second, would trade concerns begin to weigh on global growth?

As we reach the end of June, we’ve had some reassurance on both counts.

Firstly, on monetary policy, we’ve seen both the Fed and the ECB indicate that they would be willing to reduce interest rates and loosen policy as needed – which seemed to be enough to satisfy financial markets during the month.

And, secondly, on trade policy, we’ve seen a ratcheting down of the rhetoric following the G20 summit and the signs now are that we could begin to see some progress between the US and China.

What next for monetary policy and trade?

So after a fairly strong performance from equities in June, the question is what next?

When we think about interest rate policy we’ve seen some positive rhetoric from the Fed in the ECB but no interest rate cuts. The concern here is that the Central Banks don’t move quite as far or as fast as markets currently expect.

As for trade, the rhetoric and the news flow have been more positive, but we’ve been here before and we know that it doesn’t take much – some changes in commentary, perhaps a change to tariffs – for the outlook to become a little bit more negative.

And then the other issue to focus on now is really growth. The global growth environment has been a little bit weaker recently and that’s partly underpinned the commentary from the Fed and the ECB in terms of lowering interest rates.

The danger here is that if the growth outlook starts to deteriorate, investors may start to think a little bit more about corporate profitability and the potential impact on earnings growth.

What Woodford has taught us, again

We’ve had a strong performance from financial markets in June, but we continue to focus on some of the risks that we see in the market.

One area of attention is centred around market liquidity. We’ve had a few examples in the past couple of weeks, including one where a fund was unable to return cash to its investors when they asked for it.

It’s an important reminder, we think, to focus on the broad range of risks when investing, including the possibility that you won’t be able to get your money back for a period of time or at a price that you like in a more difficult market environment.

When times are good, it’s relatively easy to buy and sell assets, but when things get a little bit tougher, some of that market liquidity can disappear quite quickly.

At Moneyfarm, we continue to believe that the right course of action for most people is to invest in broadly-diversified, low-cost, liquid, public-market exposure and that’s what we aim to provide.

Why a Best Buy list isn’t advice

‘Best buy’ lists have become a hot topic of conversation as a result of the Woodford saga.

The lists, which are often created by investment platforms, essentially name investments that the author thinks are good to buy.

This can be a helpful guide for investors. If done properly and by investment experts, it helps narrow down a large universe of options into a small enough list for the end investor to work from.

However, they do not constitute financial advice, and we believe some investors can end up in the wrong investment for their situation and goals.

It takes a lot of time, money, skill and expertise to manage your investments successfully for your financial situation, which is why we believe advice is so important.

At Moneyfarm, we use digital advice to match you to investments that are suitable for your financial goals, financial situation and tolerance for risk. It’s just as important that an investor takes enough risk with their investments, as it is to protect them from taking too much.

By investing in a suitable investment portfolio, we believe you’re more likely to achieve your financial goals as your portfolio is built to reflect your investor profile.

If you have any questions about the themes in this month’s market update, or you would like to discuss the investment guidance, retirement planning and market insight services our Investment Consultants can provide, please book a call and one of the team will be in touch at a time that is suitable for you.

The debate over whether private pensions or buy-to-let property is best when investing for retirement is as old as time.

It’s no surprise that Brits have a soft spot for property. It’s not just about the potential financial gain, it’s also about having something tangible that you can have some control over.

Just under half of adults surveyed in the UK believe property to be the best place to invest money, the highest proportion since records began in 2010, according to the most recent Wealth and Assets Survey from the Office for National Statistics.

If you’ve been struggling to decide whether to invest in property or a pension, this guide will help give you a clearer picture.

Is property still a good investment?

Buy-to-let does exactly what it says on the tin; you purchase property with a view to rent it to tenants. It has been a popular choice for investors looking for regular income, who might hope the value of the property improves over time.

Since the 2008 financial crisis, the government has unleashed an arsenal of initiatives to give first time buyers a leg-up onto the property ladder – including the Help to Buy shared ownership scheme, Right to Buy and the new Lifetime ISA.

However, with decades of chronic undersupply, this artificial boost to the housing market has swung the supply and demand pendulum to the other extreme. With little supply but plenty of demand, the average house price in the UK has risen nearly 50% to £229,000 since 2009, with the average London home nearly doubling in value to £475,000.

For a first-time buyer on a median income of £29,900, London property can be up to 40 times their annual salary, according to research from the Financial Times. Home ownership is now at 63%, its lowest level since the 1980s.

With fewer people owning homes, logic suggests these people must be renting. Demand and supply economics means this should push up rental prices. Data from the HomeLet rental index showed that rents in London rose by 1% in May 2019 compared to May 2018, up 1.3% across the UK on average.

Pros of investing in property

Familiarity bias

Regular income

Potential for growth in the property value

Familiarity bias is something many investors are subject to, it is the tendency to invest in something you know. It’s one of the reasons buy-to-let is favoured by many, you can walk past a home, hold the keys, understand what it is to live in it. The physicality of the investment makes it appealing to some.

It’s also easy to understand, an investor buys a property with the view to rent it out. Buy-to-let has also traditionally been viewed as a relatively safe investment. This has been helped by a healthy rental market providing regular income, and a booming property market that has increased the value of the underlying asset (the house).

Investors often look to buy-to-let for stability during times of stock market volatility, low interest rates and/or small dividend yields. The prospect of regular income can also be a welcome addition to a pension. Thanks to rock bottom interest rates, landlords have been attracted to cheaper mortgages and, as long as the housing market remains buoyant, demand is expected to underpin the value of property.

These fundamentals are reflected in the growing number of landlords in the UK, which jumped 7% to 1.8 million in 2013-14, earning £14.2 billion in total, data from HomeLet shows.

Most landlords invest in buy-to-let for the rental income over the potential for long-term capital growth, although this is still a popular motivation.

Cons of investing in property

Illiquid investment

A lot of time goes into managing property

Beneficiaries may be charged inheritance tax if you pass away

Costs to run the property can quickly rack up:

Stamp duty when you buy the property

Mortgage payments

Estate agent fees (for the buying, selling and management of the property)

Wear and tear on the property

Income tax on the rent you receive

Capital gains tax when you sell the property

Property bridges the divide between popular culture and finance like no other asset can, which makes Britain’s affinity with the asset class understandable. But property might not be as safe and stable as many are still happy to believe.

Putting all your risk in one place leaves you exposed to any turn in the market. Instead, diversification can help investors spread their portfolio risk across asset classes and investments, in the hope to smooth out any losses with gains from elsewhere. The government’s crackdown on the market has made it fundamentally tough for investors to make profit and an interest rate rise could cause more pain.

Whilst the buy-to-let market could hold potential, investors need to consider that future rents may not be as high as they were in the past. Added on to this, changes to the tax regime could hit returns.

A buy-to-let investment is not without costs, which need to be managed tightly, and is definitely not for those who like the easy life or are time-poor. Although buy-to-let is for the long-term, this doesn’t mean you can adopt the same “bottom drawer” strategy as a long-term, diversified investment.

The path to buying the property is a long one; you have to save for your deposit, research the market and know your customer inside out before you even put an offer down on a property.

Once you’ve bought the property you have to make it habitable before trying to find tenants. Then you have to sort out insurance, which can range from £100-£1,000 – although most are between £200-£300 and can be tax deductible.

Once you’ve got your tenants in, you still have to keep meticulous records to save money on tax, make any improvements and replace things when they break. When your tenants change you’ll have to ensure the property is in a fit state for when more tenants move in. And so the cycle continues.

The illiquidity of property adds even more risk to this cocktail. Many comfort themselves with the notion that they can live in their property if it all goes wrong. Unfortunately, if you already have a home, this just isn’t feasible. Investments aren’t there to have second uses.

There’s no doubt the last 20 years have been a great time to be invested in property, but are those wanting to join the party now too late?

Investing in a pension for retirement

Pensions come in many different shapes and sizes, whether from the state or a scheme from your employer. They provide you with a regular income throughout retirement, and allow you to invest your savings for your future income.

A Self Invested Personal Pension (SIPP) is a type of personal pension that offers people more flexibility when saving for retirement. SIPPs are popular with investors looking to reach their retirement dreams, as they give investors more flexibility, transparency and control over their pension investments.

The value of your personal pension depends on how much you put in it, how long you’re invested for, how your investments perform, and how much you’re charged in management fees.

You can invest in a wide range of assets through a SIPP, although not all pension providers will allow you to invest in all asset classes through their platform. This list of asset classes includes:

Stocks and Shares

Exchange‐Traded Funds

Investment Trusts

Funds

Bonds

Bank Deposit Accounts

Commercial Property

Real Estate

Offshore Funds

Pros of investing in a personal pension

Tax relief relative to your income tax band

Your pension can grow tax-free within your pension wrapper

Investing your pension can offset the impact of inflation and grow your savings for your retirement income

You can choose how much control you have over your pensions, opting to manage your pension yourself with a DIY platform, or let the experts do it for you with a digital wealth manager, whilst still keeping you in control with easy access to your pension hub

You can take 25% of your pension savings tax free from the age of 55

Pensions can be passed on to beneficiaries with no inheritance tax charge if you pass away before 75

You can combine all your old pensions into one pot, which can be easier to manage and cheaper to run

The government wants you to save for your future, that’s why there are a number of tax incentives available to those who invest in a pension. You may be eligible for tax benefits when you contribute to a pension, whilst your money is invested and when you retire.

The government gives you tax relief on your pension contributions relative to your income tax band. Basic rate taxpayers get 20% tax relief, higher rate taxpayers get 40%, and additional rate taxpayers get 45% tax relief on their pension contributions.

For example, if you’re charged the basic tax rate, you’ll only need to pay £8,000 into your pension for a £10,000 contribution – the basic rate tax relief is automatically added to your pension investments. This tax incentive is a real draw to saving for your future, as it essentially gives your savings a 25% boost.

If you’re a higher rate or additional rate taxpayer, you can claim back even more through your annual tax return. This is equivalent to a higher rate taxpayer paying £6,000 for a £10,000 contribution and an additional rate taxpayer paying just £5,500 – although the additional relief is reflected in your tax band and isn’t processed like your basic rate tax relief. This tax relief scheme can make a real difference to the amount you save for your retirement income over the long-run.

In Scotland the tax relief scheme differs slightly, after two additional bands were added; a ‘starter’ of 19% on income between £12,500 and £14,549, and ‘intermediate’ of 21% on income between £24,944 and £43,430. The higher and top rate have risen by 1% to 41% and 46%. Those on starter rates will still get 20% tax relief at source.

Cons of investing in a personal pension

You may lose your employer contributions if you don’t make the most of your current employer pension scheme

The value of your pension may fall due to the dynamics of the market

You can’t access our pension until you are at least 55 (although we actually believe this to be a good thing)

Pension fees can be expensive and you could find yourself paying more than you need to if you don’t look for the best value for money

Investing your money for your future can be daunting. It takes a lot of time, skill and knowledge to give your money the best chance to grow, especially when it’s for something as important as your retirement income.

You need to ensure you’re investing in the right way to get you where you need to be within your desired time horizon. Understanding your investor profile is one of the first steps to doing this.

Your investor profile acts a bit like your investor DNA, outlining the foundations of what you should invest in and the proportion that each asset class should make up in your portfolio. Your portfolio should then be managed and adjusted to continually reflect your investor profile for as long as you invest.

If you want to invest by yourself, you’ll need to be able to objectively analyse your personality, financial background, appetite for risk and time horizon, and build a diversified investment portfolio to reflect this.

You can now access digital advice at the touch of a button and at a fraction of the price of the traditional industry thanks to innovation in financial services. We believe digital advice helps people make better decisions with their money, therefore helping them lead a better life.

Managing your money for your retirement is now cost-efficient, simple, and hassle-free, allowing you to focus on the important things in life.

Where should I invest my money?

A pension is a simple and tax-efficient way to maximise your savings for your retirement income. If you don’t have the time, confidence, or skill to manage your pension investments yourself, opening a pension with a digital wealth manager like Moneyfarm can help you make better decisions with your investments.

Moneyfarm blends digital advice and human investment guidance on its fully-managed pension portfolios, putting its customers in the best position to reach their financial goals. The Investment Team build and manage the portfolios to ensure investors are in the best position to reach their retirement goals.

Moneyfarm’s team of Investment Consultants will support you in the way that best suits you – whether that’s in person, on the phone, or over email. Whether you want investment guidance, retirement planning or market insight, please book a call and one of our Investment Consultants will be in touch to answer any questions you might have.

Today we’re excited to announce our expansion into Germany with a unique investment product developed in an exclusive partnership with Allianz. Building on our mission to be Europe’s leading digital wealth manager, the innovative partnership is helping redefine the relationship between fintech and traditional financial services.

Moneyfarm and Allianz have worked together to develop the unique product in the German market, which will leverage Moneyfarm’s extensive experience in offering digital wealth services with Allianz Global Investors’ experience of managing mutual funds and risk management expertise.

Customers in Germany can view their portfolio online via the Moneyfarm platform. As with Moneyfarm users across Italy and the UK, they will also have access to investment guidance from a team of Investment Consultants should they want to discuss their accounts.

The new product, launching in beta today, aims to give customers the benefit of active returns at competitive prices.

The initial beta test will be offered to existing clients of vaamo and strategic partner 1822direkt, as well as Allianz Global Investors Germany employees. Following the trial, customers in Germany will be able to invest in the new offering from September.

Huge landmark for Moneyfarm

Moneyfarm, which is headquartered in the UK and has nearly 40,000 customers, has been working with Allianz over the last couple of years to deliver a cost-effective solution that combines technology, expertise and risk management in order to expand our capabilities and deliver better outcomes for customers across Europe.

Speaking about the expansion of the business, Giovanni Daprà, Co-Founder and CEO of Moneyfarm, said: “Our expansion in Germany represents a huge landmark for Moneyfarm as we grow our presence outside of Italy and the UK and look to capitalise on the growth of digital wealth management across Europe. This sets us up to continue the strong growth of the past 12 months right into 2020.”

Allianz has a strong strategic focus on simplicity, being digital by default, and customers being at the heart of everything we do. These strategic priorities align closely with our own, which makes for an intelligent, well-developed joint product offering that delivers real value to our customers.

“The agility and drive Moneyfarm brings to the table is something an incumbent can always learn from,” explains Juergen Weber, Head of Business and Operational Transformation at Allianz Asset Management, firm in the belief that both Moneyfarm and Allianz can learn a lot from each other. “The partnership with Moneyfarm is a strategic long-term investment, we’re fully convinced the digital wealth management industry will grow and gain importance.”

As savers look for simple ways to manage their pension pot and save on fees, many are choosing to combine their old pensions into one pot. This guide will demystify the process, allowing you to decide whether consolidating your pensions is the right choice for you.

What is pension consolidation?

Simply put, pension consolidation is the process of merging your different pension pots into one place. This can make your pensions easier to manage your and cheaper to run.

We know that financial security in retirement is a priority for many savers, but it can be difficult to understand exactly what you’ve got, what you need to achieve your dream income and what you need to do to get there.

With the average person having 11 different jobs in their lifetime, they probably have 11 different pensions to keep on top of. No wonder the government predicts there will be over 50 million dormant or lost pensions by 2050.

If you’re unsure whether you’ve misplaced an old pension, you can use the government pension tracking scheme set up by the Department for Work and Pensions.

Consolidating your pensions into one place makes it easier to see how your investments are performing and know exactly what you’re paying in fees at any time.

Transferring old pensions is pain-free with Moneyfarm and doesn’t cost a thing – although it’s worth checking to see if your existing provider levies any fees for transferring.

What are the benefits of combining multiple pension pots?

There are a number of reasons why you might think about transferring your pension:

You want a different pension service to the one your provider is offering

Compound interest is one of the most powerful forces in the world of investing. This is when the return you generate on an investment is reinvested and then earns its own return, and can make a real difference to the value of your pension over the long-term. When your pension is split into different pots, the rate of growth won’t earn the same momentum as it would if your savings was in one. If you’re interested about how it works, read more about compound interest.

Avoid expensive fees

Charges on pension pots can vary greatly, but often management fees reduce the more you have invested. If you have your savings split into smaller pensions with different providers, you could be paying more on average than if you put your pots together. Check out Moneyfarm’s simple and transparent fees and charges.

Understand your investment strategy more easily

Keeping on top of how your investments are performing, how much you’re paying and whether you’re on track to reach your goals can be tough when you have multiple pensions. Putting your pots in one place makes it much simpler to understand where you are, where you want to be, and how to get there, putting you in control.

What you should consider before consolidating your pensions

The industry is more flexible than ever before, which allows consumers to make the adjustments they need to get the retirement income they desire.

Whilst the benefits to combining your pensions is clear, there might be times when you’re better keeping your pots separated. If you’re unsure, please get independent financial advice.

You may lose employer contributions

Withdrawing your money from an existing workplace pension scheme early to consolidate it with your other pots may mean you lose some or all of your employer contributions.

You may lose your defined benefit pension and other benefits

The FCA believes defined benefit pensions offer more security than a personal pension, as they offer you a guaranteed income throughout retirement and benefits to a spouse or partner if you die. If you transfer your defined benefit pension you will likely lose these benefits. If your pension is worth over £30,000, you’ll need to have a consultation with an Independent Financial Adviser before you transfer, otherwise many personal pension providers won’t accept you under regulation. You may lose other benefits like guaranteed annuity and loyalty bonuses.

Watch out for transfer fees

The industry has come a long way in terms of transparency over the last decade, with many investment solutions being more in the customer interest. Whilst digital wealth managers like Moneyfarm do not charge transfer fees for moving your pension to or away from us, some providers do so it’s worth keeping an eye out for unexpected costs.

You can use Moneyfarm’s Pension Calculator to help you work out how much you need to be saving a month to get the income you want in retirement, or start one of Moneyfarm’s regular investment plans.

How to consolidate your pensions

Consolidating your pensions to Moneyfarm could make it easier to manage your pension pots and cheaper to run.

All you need to do is sign up to Moneyfarm, select the Pension account and authorise an electronic pension transfer. We’ll take it from there. We’ll talk to your existing provider and move your pensions over to your Moneyfarm account.

This process should take three-four weeks, although this depends on your provider. Depending on where you’re transferring your pension from, there may be additional paperwork to sign. If so, we will get in touch.

Let us get you one step closer to securing financial wellness in retirement, allowing you to focus on the important things in life.

Monitoring the markets on your behalf, our Asset Allocation Team help you stay one step ahead. Here, Richard Flax discusses how the Conservative leadership contest could impact the impact of Brexit.

Equity markets had a tough time in May, falling around 2-2.5% in sterling terms. That reverses some of the optimism that we’ve seen over the past few months.

Trade disputes loomed large in May. The ongoing saga between the US and China caught the headlines, but we also saw increasing tensions between the US and Mexico, with a focus on immigration and the US and India.

The concern here is that weaker global growth could translate into slower earnings growth for companies and weaker corporate profitability. On the other side the prospect of slower global growth has begun to impact market expectations about interest rates. In particular, financial markets now expect the US Federal Reserve to cut interest rates over the coming months.

One other area of attention is really around the regulation of technology companies.

This has been in the news for a while, but more recently we’ve seen the US Department of Justice take an interest in a couple of the large technology companies with regard to antitrust.

The concern here is that some of these companies have become too big and too successful and are beginning to dominate their markets in anti-competitive ways.

Now some of the more dramatic solutions that have been proposed seem to us unlikely, at least at this point – breaking some of these companies up for instance – but there is a concern that these companies would be forced to operate under greater regulatory scrutiny and this could impact some of their profitability and their growth going forward.

Back at home, the outlook for Brexit remains as murky as ever. Whoever becomes Prime Minister, the problem still doesn’t change; what sort of deal can get through Parliament?

As of now, come October 31st, the UK will leave with no deal and the likelihood of an extension beyond that date, either from the EU or from the UK government, is unclear. We continue to believe that a No Deal scenario would be negative for UK assets.

From a portfolio construction perspective, having a globally diversified portfolio should help to insulate clients from some of these UK’s specific risks.

So in the short term we see some challenges facing the global economy. Overall we’re comfortable with the relatively conservative positioning of most of our portfolios.

It is reassuring though that some of the excess optimism we saw earlier in the year seems to have been tempered. If we do see market volatility pick up, we think we’re well positioned to take advantage of some of the opportunities that this may create.

Theresa May has announced her resignation, sparking what could be a fierce leadership race. Find out how Chief Investment Officer Richard Flax thinks the changing political landscape could impact portfolios.

Theresa May has announced her resignation, sparking what could be a fierce leadership race. Officially standing down on 7 June, she will continue in a caretaker role until the next Conservative leader is picked, which is expected by the end of July.

In fairness, Mays departure isn’t a huge surprise. As for her successor, some pundits have Boris Johnson as the firm favourite, followed by Dominic Raab.

Boris has been losing weight and appears to have invested in a comb, so he’s clearly taking the whole thing quite seriously.

How does this impact Brexit?

The problem, of course, is that Theresa May’s departure doesn’t necessarily clarify the outcome of Brexit.

Johnson claims to be happy to leave without a deal, even if voting in Parliament tried to rule out that possibility.

The EU won’t be keen to re-open negotiations – it’s already taken far too long. You might expect a new Prime Minister to ask for an extension to the Halloween deadline, in order to build a consensus, but that has its own problems. Namely that there appears to be no consensus in Parliament for any particular outcome.

The European election results this weekend probably won’t give too much guidance either. The Brexit party is expected to do well, as will the agglomeration of Remain parties – Lib Dems, Greens, SNP, and Change UK. The Conservatives and Labour will have suffered if voters were unable to remember what they stood for when it came to placing their ‘X’.

Labour have come out immediately demanding a general election – which should be in 2022 under the Fixed Term Parliaments Act. In order to have an election earlier than that, you’d need to have two/thirds of Parliament backing you, or a no-confidence vote passed in the government.

Labour tried, and failed, with a no-confidence vote in January. The Tories and DUP together still have enough votes to fend off another no-confidence vote – especially with the promise of a new leader hanging in the air.

If we did see an election pre-Brexit, that could cause some short-term disruption for UK assets, either because of increased Brexit uncertainty or because the possibility of a Labour government would be taken as negative for UK assets.

How this could impact your portfolio

In the short-term, we don’t expect much impact on markets. May’s departure was largely expected and doesn’t provide much clarity on the outcome of Brexit.

If a no-deal supporter becomes Prime Minister, the probability of no-deal will rise and we continue to believe that would be negative for UK assets. But the move in sterling from $1.32 to $1.26 probably reflects some of that already.

As for portfolios, our Brexit ISA campaign highlighted how Moneyfarm’s globally diversified and expertly managed portfolios are built for life beyond Brexit. Times (and Prime Ministers) might change, but good investment strategies don’t.

Our team have been adjusting the investments in our portfolios over time to ensure we’re minimising risk and making the most of global opportunities – of which there are many.

It’s tempting to consider reducing some of our sterling exposure further, even after the recent move. We also continue to debate increasing our FTSE 100 exposure given the valuation.

But, in general, we’re not inclined to make any sudden moves in reaction to today’s news. We build and manage portfolios with a ten year view, as we firmly believe time is the greatest tool for generating and maximising long-term returns.

If you have any questions about how recent political moves might impact your portfolio, or the decision-making behind your portfolios, please get in touch with your Investment Consultant on 0800 4334574.

Monitoring the markets on your behalf, our Asset Allocation Team help you stay one step ahead. Here, Chief Investment Officer Richard Flax discusses how economic and political events have impacted financial markets, and how climate change could impact the markets of the future.

Central Bank update

We’ve had various updates from three Central Banks this week – the US Federal Reserve, the Bank of England and the European Central Bank.

In each case, the comments were perhaps a little more geared to tightening monetary policy (through hiking interest rates) than some might have hoped.

It’s a reminder that whilst the market may have declared inflation dead, Central Banks haven’t quite done the same, even after the Fed’s big turnaround at the start of the year.

What did they say?

First, the Fed. The US Central Bank left rates unchanged, as expected, but Fed Chair Jay Powell indicated that some of the weakness in inflation could be “transitory”, so didn’t see any reason to move from their current stance.

That disappointed those looking for a rate cut this year, and the market-implied probability of a rate cut this year duly fell (at least a little bit).

As for the Bank of England, Governor Mark Carney presented the quarterly inflation report this week and commented that the market wasn’t pricing in enough rate hikes. There was, of course, an important proviso; the Bank continues to assume a smooth Brexit (assuming this means “no-deal”).

Carney stressed that future monetary tightening would be “gradual and to a limited extent”, but there would probably be more frequent interest rate increases than the market currently expects.

And then there was the ECB – where, governing council member Jens Weidmann argued that the ECB should continue to exit from its unconventional monetary policy.

It’s not unexpected for the President of the Bundesbank to be relaxed about inflation, but this comment came alongside higher than expected Eurozone inflation in April, albeit still below the ECB’s target.

What does this mean for portfolios?

This doesn’t mean too much for portfolios over the short-term, but it’s worth remembering that the market consensus is for Central Banks to be on hold for a while.

This week has just been a small reminder that that view might be a bit too sanguine. If we do see global growth re-accelerate in the coming months, which could be positive for risky assets, we should expect Central Bankers to start talking a bit more about normalising interest rates.

The nirvana of decent growth, no inflation and interest rates on hold might be too good to be true. All that said, our guess is that it won’t have much impact on risky assets, because the risks to growth remain quite balanced, but it could create a bit of noise over the next six months.

Climate change

One area of focus for us at the moment is the impact of climate change on financial markets. There are a range of ways we see this happening, from the composition of indices, corporate profitability, government policy, and corporate behaviour.

It’s not something we expect to have a big impact over the next three-six months, but over time we really expect to see the implications begin to feed through into financial markets.

We will particularly see this in terms of technological development – where we will see winners and losers – and in terms of valuation – how markets value future cashflows.

We will also see changes to regulation, around renewable energy, the supply chain, and a whole host of issues that could impact companies over time.

This is something we are focusing more on at Moneyfarm and will outline our thoughts more in the future.

As I’ve said before, the absence of inflation in Developed Market economies is one of the enduring mysteries of recent years.

Even as wage growth in the US has accelerated, inflation has consistently remained at or below the US Central Bank’s 2% target. This has allowed (or forced) Central Banks to keep interest rates lower for far longer than most people had expected.

We’d argue that the path of inflation, and the US Federal Reserve’s response to it, will continue to be pretty significant for financial asset prices in the future.

It should really be an important caveat to most conversations about the value (or perceived lack-of) of investments in financial markets. For instance, when the Chief Executive of Blackrock says there’s more of a risk that financial markets ‘melt up’ rather than ‘melt down’ (rise sharply, in other words), he should really add the caveat “provided inflation remains subdued”.

People don’t say that, partly because no one really seems to expect inflation to accelerate.

Why does it matter?

Inflation and inflation expectations matter for a few reasons.

Firstly, it’s always worth remembering that inflation hurts the poor most of all – particularly inflation in food, energy and housing. It’s a point that Brazil’s ostensibly left-wing President Lula used to make as he kept Brazil’s Central Bank focused on lowering inflation.

Secondly, inflation and inflation expectations usually play a critical role in interest rate policy. We saw that most clearly towards the end of last year, where tighter monetary policy prompted a sharp drop in inflation expectations, and helped drive a shift in US monetary policy.

Thirdly, so-called “risk-free rates”, often defined as 10-year government bond yields. These are partly set by inflation expectations and help set prices for a broad range of riskier financial assets (at least in theory).

What does it all mean?

Basically, if inflation stays low, interest rates will likely stay low, which will be supportive for riskier financial assets like equities and high yield bonds, on balance. And if inflation accelerates faster than people think, then we could see the reverse – which could be uncomfortable.

Inflation vs Inflation Expectations and the US Fed?

Ok, this is more interesting. For the past 20 years, developed market Central Banks have basically said that monetary policy operates with a lag (say 12-18 months). Therefore, if they think inflation is going to accelerate above their target, then they need to move preemptively.

Hence the intense focus on inflation expectations, almost more than the actual current level of inflation. And this logic (or at least something similar) has driven the recent tightening we’ve seen in the US.

Now we’re beginning to see signs of a shift. There are a couple of options – the first idea is that the Fed should look at average inflation – in other words, if inflation undershoots the target 2% level, then maybe you shouldn’t hike rates until it’s spent time above that level.

Another option is that the Fed should be driven more by actual inflation, rather than expectations; only hike rates when you can really see inflation in the economy.

You could argue that part of this debate is driven by the deflationary experience in Japan in recent years, where the Japanese Central Bank has proven unable to generate inflation through monetary policy. There’s also the absence of inflation in the US in recent years – the decision to stop hiking rates clearly came as a surprise.

Some argue (our friends at AGI, for instance) that the Fed has already broken with its historical behaviour by ceasing to tighten even though the economy looks quite strong on various metrics.

In any event, these are some of the issues that are currently under discussion at the US Fed (led by Vice-Chair Clarida). We should get some comment from the Fed in the third quarter of this year.

What does it mean for financial asset prices?

A world where interest rates stay lower for longer should be supportive for financial assets all else equal – and probably allows equities / high yield to do better than low-risk assets.

There are a few caveats – first, all else may not be equal. As we’ve noted before, if interest rates stay low because growth is weak, then maybe we’ll see corporate profitability suffer over time.

Incidentally that probably also means that companies that can generate growth should outperform the market average – even if they are more highly valued.

The political point is also relevant. If policy benefits continue to flow predominantly to asset owners, should we expect to see a political backlash? Maybe we already are.

And finally, if you wait for inflation to arrive before you tighten, maybe Central Banks will move faster, later. The party goes on for longer, but the hang-over is worse.

At Moneyfarm, we continuously monitor the markets and economic backdrop to ensure portfolios are properly positioned to make the most of global opportunities as they emerge, and minimise exposure to risk. Of course, we know the value of our model portfolios will probably fluctuate over the long-term, but we aim to keep this volatility within levels outlined by our Investor Profiles.

It’s all about taking on the right amount of risk for your risk profile, which is often closely linked to how long you want to invest for. At Moneyfarm we certainly believe a long-term strategy can give an investor an elusive edge. If you want your money in 12-18 months, it could be more appropriate to keep your money in an easily accessible cash savings account.

In December, our Investment Consultants had a number of conversations with investors concerned by the volatility experienced on financial markets as investors feared the Fed’s approach to monetary policy would choke economic growth, a key driver for equities.

If you had been tempted to sell during this volatility, you’d have accepted the losses. However, if you’d have given it a little time, you’d have seen the model portfolios recover, buoyed by the markets tipsy on the change of direction from Central Bank policy. This backdrop helped Moneyfarm to achieve one of the strongest quarters ever seen for its portfolios, as US markets enjoyed their best start to the year since 1998 and best quarter since 2009.

]]>https://blog.moneyfarm.com/en/financial-markets/why-inflation-is-the-enduring-mystery-of-recent-years/feed/0Why you should use your ISA allowance at the start of the tax yearhttps://blog.moneyfarm.com/en/isas/use-isa-allowance-start-tax-year/
https://blog.moneyfarm.com/en/isas/use-isa-allowance-start-tax-year/#respondFri, 12 Apr 2019 10:36:29 +0000https://blog.moneyfarm.com/en/?p=6495

Many rush to use the ISA allowance each March, but could starting in April make you better off in the future? Here we look at the things to consider.

For those who want to grow their money efficiently over the long-term, a stocks and shares ISA is a great place to start. ISAs always get a lot of attention at the end of the tax year, but the savvy investor knows it’s the early bird that catches the worm.

Best described as a tax wrapper that protects your money from the taxman, you can put up-to £20,000 in your ISA and all of the interest, income and capital gains generated can grow in your ISA tax free until you want to take your money out.

This is the main draw of the ISA. It’s a simple and tax-efficient way to grow your wealth over time.

You can decide whether to put your allowance in one particular ISA, or split it across a few, although you can only open and put money into one type of ISA each tax year.

Should you have a cash ISA or stocks and shares ISA?

Both cash ISAs and their stocks and shares cousins play an important role in financial planning.

If you have a short time horizon or prioritise protecting the value of your money, a cash ISA might best suit your investor profile and goals. Unfortunately, inflation can silently eat into the purchasing power of your cash savings over time.

If you’ve saved up three months of outgoings, have paid off any expensive debt, and have a longer time horizon, you might want to make your money work harder for you on the financial markets.

Over the long-term, investing often outperforms cash. Take this research from Barclays, which shows stocks and shares ISAs outperform cash ISAs 91% of the time over a ten-year period.

Time is your friend

It’s easy to agonise over the best investment strategy to help you reach your goals and there are many habits designed to help maximise your returns. The one thing you really need is time.

Encouraging you to ride out short-term fluctuations, a longer time horizon allows you to take on more risk with your money in the hope that you’ll get higher returns.

Risk and return work together, so the more you want your money to grow, the more risk you need to take with your investments. The markets rarely get to their end destination in one swoop, there’s often short-term volatility along the way.

But riding these fluctuations out could be all you need to see your money go further. A well-thumbed research paper from asset manager JP Morgan highlights just how damaging missing the ten best days of performance can be on your overall return.

If you’d have invested in the S&P 500 in the two decades to 2014, you’d have made nearly 10% a year on average. Take out the ten best days and this performance slips back to just over 6%.

This highlights just how much trying to time the market can be on your investments. Although short-term volatility can make investors sell-out of their investments, the best performance can often follows these days of poor trading, leaving some investors out of pocket.

The millionaire regular investing plan

Investing £20,000 as a lump sum isn’t possible for everyone. But if you plan ahead and contribute to your ISA on a monthly basis, you could end the tax year with a strong investment portfolio that’s grown throughout the year.

Regular investment plans can take a lot of the hassle out of investing. You don’t need to decide when to invest and you don’t need to time the market. All you need to decide is how much you want to invest.

Not only is regular investing simple, but it can actually have financial benefits over time. By averaging out the price of an asset, you can lower the total amount you pay for it during periods of volatility – this is called pound cost averaging and we explain it in more detail below. The less you pay for an asset, the less the investment needs to grow for you to make a profit.

Below, we’ve outlined what you could have by investing in one of three regular investment plans for 30 years: £400 a month, £800 a month, and £1,600. This is a long-term investment, but the benefits are clear to see below.

We’ve assumed you will have invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds.

If you’d started invested in this 60/40 model portfolio in 1990 and continued to today, your money would have grown by an annualised 7.49%. We’ve assumed this rate of growth for our regular savings plans below, along with a more conservative 5% growth estimate.

Investing £400 a month

How much you’ll have with 7.49% annualised growth: £422,000

How much you’ll have with 5% annualised growth: £272,000

Investing £800 a month

How much you’ll have with 7.49% annualised growth: £843,000

How much you’ll have with 5% annualised growth: £545,000

Investing £1,600 a month

How much you’ll have with 7.49% annualised growth: £1.7 million

How much you’ll have with 5% annualised growth: £1.1 million

This could be a useful addition to your pension income, as there are tax charges if you contribute over your annual allowance, which is currently £1,050,000 for the 2019/20 tax year.

End of the tax year

As the City clears up from the celebration of the tax year-end and the ISA season winds down, investors fall victim to ‘out of sight, out of mind’, which could be diminishing the potential for returns.

Many will wait until the last minute to decide how to make the most of their annual tax wrapper, but investors could increase their scope for returns with just a little bit of forward planning.

Here are five reasons why you should get ahead of the game and start maximising your ISA allowance today.

1. Maximise tax efficiencies

The main benefit of an ISA is that your investments can grow tax free. You won’t pay capital gains tax if your investments increase in value, and your income is also safe from the taxman – whether from dividends or bonds.

If you start investing earlier in the year, you stand to benefit from the tax-free returns for longer. However, as the annual CGT allowance is £12,000 for the 2019/20 tax year, this won’t necessarily affect all investors.

2. Maximise returns

The case for long-term investing is well established, and whilst a year is usually considered short-term, it’s a lot longer than the one month you’ll be invested if you leave it to the end of the tax year. This will give your investments more chance to grow, although the value of your portfolio can go up or down.

A diversified investment strategy looks to smooth out sector-specific risks by offsetting any negative performance with the positive. The earlier you start, the more opportunity your investments have to grow tax-free.

3. Get peace of mind

You either use the annual ISA allowance, or you lose it. Taking advantage of your tax-free wrapper earlier on in the year means you don’t have to worry about missing the deadline next April.

4. Hassle-free investing

Make your life simple. After signing your initial ISA declaration, you don’t have to fill in a tax return for your investments within your stocks and shares ISA.

At Moneyfarm, we do the hard work for you – matching you to an investor profile and portfolio that’s specifically managed by our experienced Investment Team to reflect your tolerance for risk. This allows you to focus on the important things in life.

If you have any questions about investing in your ISA, the investments in your portfolio, or would like a free external Portfolio Review, book a call with our Investment Consutlants. They are happy to talk through how recent market events could impact your investments, and how your portfolio is positioned to maximise global investment opportunities and minimise risk.

It’s common for investors to take a fresh look at their investments in the new financial year. It’s the perfect time to take stock of where you are and understand how you’re going to get to where you want to be.

Investing for the future means investing during the times we live in and making the most of any opportunities in the global markets and minimising risks.

Here, Head of UK Investment Consultants, Will Hedden, explains how Brexit should impact investors’ investment strategy, the lessons learnt from first quarter performance, and details adjustments recently made to the latest rebalancing.

How Brexit should impact your investment strategy

A lot can change in a short space of time, so it’s important for us not to let the twists and turns of negotiations influence our investment decisions, instead keeping a long-term focus.

Our Brexit ISA campaign highlights that whilst times might change, a good investment strategy doesn’t need to. We focus on this in three ways at Moneyfarm, through global diversification, low cost and expert management.

Our experienced investment team build and manage portfolios that offer broad diversification to ensure they are exposed to global opportunities whilst minimising risk.

We also keep costs as low as possible without sacrificing on value so you keep more of your money.

This includes ongoing investment advice and access to our Investment Consultants, who are on hand to discuss the performance of portfolios and how global events are impacting your portfolio and Portfolio Reviews.

What lessons can investors take from first-quarter performance?

In December, our Investment Consultants had a number of conversations with investors concerned about their portfolio performance. Financial markets were experiencing volatility as investors feared the Fed’s approach to monetary policy would choke economic growth, a key driver for equities.

It’s common to hear professionals talk about ‘time in’ the market, not timing, helping maximise returns over the long-run. At Moneyfarm we certainly believe a long-term strategy can give an investor an elusive edge.

It’s all about taking on the right amount of risk for your risk profile, which is often closely linked to how long you want to invest for. If you want your money in 12-18 months, it could be more appropriate to keep your money in an easily accessible cash savings account.

If you had been tempted to sell in December, you’d have accepted the losses showing in your portfolio. However, if you’d have given it a little time, you’d have seen portfolios recover, buoyed by the markets tipsy on the change of direction from Central Bank policy.

This macro backdrop has boost the valuations of global shares. Despite the ordinary earnings season, the S&P 500 was the uncontested top performer of the quarter (+14%), followed by Eurozone (+12%), UK (+10%) and Japan (+8%).

In Emerging Markets, China started the year with an astonishing +30%, offsetting weakness elsewhere and pulling the sector up by around 12% on the quarter.

This backdrop helped Moneyfarm to achieve one of the strongest quarters ever seen for its portfolios, as US markets enjoyed their best start to the year since 1998 and best quarter since 2009.

We think it’s important you see these two quarters as quite rare, but it does highlight the reasoning behind our conversations at the end of last year. Sticking to your investment strategy is likely to be the best way to reaching your financial goals on time.

If you have any questions about your portfolios or the potential impact of global events on portfolio performance, please get in touch with our Investment Consultants on 0800 433 4574, who are available to talk through any questions you might have.

Whatever your views on Brexit, the uncertainty it’s currently casting on the future unites us. The unknown can be uncomfortable, and force investors into making decisions that can take them off course from reaching their long-term goals.

Led by Chief Investment Officer Richard Flax, the Moneyfarm portfolios are built and managed by our Investment Team to make the most of global investment opportunities whilst minimising risk, in line with your profile.

Portfolio management involves continuous monitoring of the global financial markets, which includes understanding how the latest twists and turns in the current deadlock could play out, and what impact this could have on your portfolio.

What we know about Brexit

Put simply, the saga continues – and we’re little closer to understanding how Brexit will play out.

Prime Minister Theresa May’s Brexit deal suffered its third defeat in Parliament on the day Britain was originally set to leave the European Union. The chance of a No Deal has increased in the eyes of many, with the UK set to leave on 12 April, with or without a deal.

It’s widely expected that Theresa May will go to her European counterparts and ask for a longer delay, however. And it’s likely this plea gets the nod from the 27 other European Leaders

The options for the final Brexit outcome are still broad. A softer Brexit could be on the cards, a General Election, or even a second referendum.

Eyes will turn to Westminster again on Monday, as MPs try to form some sort of consensus around alternative plans to May’s deal. Support could strengthen around the customs union and single market. MPs could then try and get the Prime Minister to adopt this plan B.

The events of 29 March

If May had finally won support for her deal, she’d have paved the way for the UK to leave the EU on 22 May.

It was always going to be a tough sell and the Prime Minister would have needed some support from the Labour benches to get her way. The DUP refused to accept the deal, as it contains the contentious backstop plan.

However, Labour had also refused to back what it called a Blindfold Brexit. To get around John Bercow’s ban on putting the same motion to vote three times, the Prime Minister has removed the political declaration on future policies from the debate. This means MPs were just be voting on the 585-page withdrawal treaty.

Investing during uncertainty with the Brexit ISA

As we countdown to the end of the tax year, Brexit is the elephant in the room. We know investors are looking to make the most of their tax-free allowances before 6 April, but uncertainty on the political stage is either delaying decision making or encouraging people to diverge from their original investment strategy.

Our Brexit ISA campaign isn’t a bet on Brexit, nor are we taking a political view. At Moneyfarm, we firmly believe in transparency. You should understand your investments, how potential risks can impact your portfolio, but also how our investment strategy aims to deliver you long-term growth.

We know our customers are investing in the real world for their real futures. It’s our job to ensure your financial future doesn’t get delayed with the Brexit deadlock.

Moneyfarm’s ISAs are built to manage risk of changing times in the right way for our customers. We do this through:

Global diversification

Moneyfarm’s carefully constructed portfolios are built to maximise growth and minimise risk from across the globe, in line with your investor profile.

Good value is built into Moneyfarm’s investment philosophy. By keeping costs as low as possible, without sacrificing on the quality of our service, you get to keep more of your money and maximise your returns over the long-run.

How Moneyfarm Portfolios are prepared for Brexit

Whilst it’s hard to escape Brexit, it’s one of a number of factors that go into building a global portfolio.

Global diversification is one of the key tenets to our Investment Strategy. Our Investment Team want the Moneyfarm ISA portfolios to have a broad range of exposure to a number of different investments and regions of the world, in line with your appetite for risk.

The main way we have prepared portfolios for Brexit is through sterling. By increasing our sterling exposure we aim to mitigate the impact of currency volatility. This isn’t to bet on one outcome or the other, but to manage the risk of the portfolios properly.

It’s important to remember these portfolios are built for the next ten years, not the next few weeks. Within this time frame, there are a number of opportunities within them.

To talk about how the Moneyfarm portfolios are prepared for Brexit or to discuss the impact Brexit could have on your ISA or Pension, please call our Investment Consultants on 0800 433 4574, and out team of Investment Consultants will be happy to help.

Opening times

If you have any questions about how your portfolios are prepared for Brexit, or the potential impact of Brexit on your portfolio, please get in touch with our Investment Consultants on 0800 433 4574, who are available to talk through any questions you might have.

We’ve extended our opening hours as we get closer to the tax year. Remember your money must be in your ISA by 3pm on 5 April for it to count in this year’s ISA allowance.

Should you combine all your ISAs or will having a collection better help you reach your goals?

What is an ISA?

An ISA is essentially a tax-free wrapper that allows you to protect your savings and investments from the taxman. You can now save or invest up to £20,000 in an ISA each financial year, and any income or growth in the value of your money can build up tax free for as long as it stays in your ISA wrapper.

The two main categories are cash ISAs and stocks and shares ISAs, but there are many different types of ISAs designed to help investors make their money go further in the right way for them – including the Lifetime ISA, Innovative Finance ISA, and Junior ISA.

Benefits of a cash ISA

When you save money in a cash ISA, your provider pays you tax-free interest on your savings. You can open an ISA with most high-street banks and building societies, although you can only pay into one in a single tax year.

Cash ISAs are good for savers who have a short time horizon and want somewhere tax-efficient to keep their savings until they need their money.

With the returns on cash ISAs negligible for some time, however, any money being kept in an easy access cash ISA has probably been losing value due to inflation.

Imagine you keep your full £20,000 allowance in your cash ISA for one year, If inflation sits at the Bank of England’s 2% target, you’ll need to make £400 just to retain the purchasing power of your savings over that time.

Unfortunately, with the Bank of England’s base rate at 0.5%, the best returns you’re likely to find on an easy cash ISA is around 1%. If your ISA returns aren’t keeping up with inflation, you’ll be losing purchasing power over the long-term.

Instead, those savvy savers who have paid off expensive debt, have three months of outgoings in a cash account in case of an emergency, and have a medium- to long-term time horizon are turning to the financial markets in the hunt for inflation-beating returns.

Although you’re taking on more risk by investing in the financial markets, you can manage this risk by building a portfolio that reflects you.

We’re all different; whether it’s our personality, the goals we want to achieve or our tolerance for risk. These characteristics help build our investor profile, which should influence the way you invest and the asset allocation in your portfolio.

If you’re more risk-averse and have a short-time frame, you might have a larger exposure to fixed income over equities. If you’ve got a long-term time horizon and can afford to take on more risk with your money, you’ll have a higher proportion of riskier assets like equities in your portfolio.

You can only set up and pay into one of each ISA products in the tax year. Many stocks and shares ISAs are flexible, which means you can put money in, take it out and replace it within the tax year without it affecting your allowance.

You don’t have to use all of your £20,000 ISA allowance, just what you’re comfortable with. But, as you can’t roll it into the next tax year, it’s worth remembering you either use it or lose it.

Should you be investing?

Cash savings accounts are an important part of financial planning. Especially as they’re not exposed to short-term fluctuations on the stock market. But you could be missing out on returns by not taking on any risk at all.

It can be difficult understanding the best way to manage your money, but this can lead many savers to accept the small returns on cash ISAs over taking to the financial markets in the search for inflation-beating returns.

This can be costly, however, with Brits missing out on £46 billion of returns over the last five years. That’s a whopping £2,000 per cash ISA saver, research from UBS Wealth shows.

Of the £239 billion saved into cash ISAs, just £15.9 billion was generated in returns. On the other side of the coin, just £101 million was put into stocks and shares ISAs during the same period, but these investors would have made £26.1 billion had their investments tracked the MSCI World Index in the five years to 2017.

Had all ISA inflows been invested, investors would have made £87 billion, benefiting from the second longest bull run on record and compound interest.

How risk can help

Risk is one of the most misunderstood concepts in the financial markets. In the real world it’s synonymous with danger, but on the markets it’s the dynamic that allows investors to protect their money from inflation and grow it for the future.

The more risk you can take with your money, the higher the returns you can expect – although the further your investments can also fall. Those who want to protect the value of their initial investment will sacrifice the prospect of blockbuster returns for the element of protection.

Whilst investors pour over the best strategies to help put them reach their financial goals, all they really need is time. In fact, stocks and shares investors are 91% more likely to outperform cash ISAs over a ten-year period, research from Barclays shows.

There are many reasons why you might want to transfer your ISA, whether it’s because your money is locked in cash losing value to inflation, or it’s taking too much time and money to manage your investments yourself, and your portfolio isn’t performing as well as you’d like.

The good news is that if you’re unhappy with how your ISA is performing, you can move it to help it grow better.

Should you combine your ISAs?

Both cash and stocks and shares ISAs – and their different varieties – have important roles in financial planning. If you’ve got a long-term horizon and want to invest, you’ll still want somewhere tax-efficient to keep your rainy day fund.

It’s important you take advantage of the suite of ISA options available to you, to ensure you’re making your money work in the best way for you.

It might be time to think about moving your ISA if:

Your returns are lower than inflation. The purchasing power of your savings is shrinking over time.

You’re missing out on the important things in life because it’s taking you hours to manage your savings or investments. You could be with a provider that does it all for you.

Your ISA is costing you a small fortune or you can’t work out what you’re paying. Fees should be simple and low-cost.

Transfer cash ISAs into stocks and shares

Transferring your ISA should be easy. With Moneyfarm, it is.

All you have to do is fill in a form, send it back to us, and we’ll do the rest. We’ll also never charge you a fee to transfer in or away from Moneyfarm, although your provider might.

You can find the ISA transfer form in the ‘actions’ section inside the details of your ISA portfolio. Once we have your ISA form, it typically takes between 15-30 days to transfer, although this is up to your provider.

It’s really important you transfer your ISA properly, otherwise you could break the tax-free wrapper around your savings.

You can transfer any type of ISA to Moneyfarm, whether it’s a cash ISA or stocks and shares ISA. Unlike topping up your ISA, there’s no deadline for transfers, as moving your ISA around doesn’t count towards your annual allowance.

Just remember, if you’re transferring an ISA in the same tax-year, you’ll have to move the whole thing, to make it easier for the government to keep on top of ISA contributions. With older ISAs you can choose how much you want to transfer.

At Moneyfarm, we blend world-class technology and investment wisdom to provide you with a low-cost, hassle-free and fully-managed investment portfolio that can help your money grow.

Our low-cost fee structure means you can keep more of your money invested to benefit from the impact of compounding – where your returns are reinvested and earn their own returns. This is said to be one of the most powerful forces when investing.

2019/20 ISA allowance ISAs are a simple way to grow your money tax-free, but it’s important you know the basics to ensure you can maximise your returns. The ISA allowance is the maximum amount you can save or invest tax-free in an ISA during one tax year. When it comes to investing in your ISA […]

2019/20 ISA allowance

ISAs are a simple way to grow your money tax-free, but it’s important you know the basics to ensure you can maximise your returns. The ISA allowance is the maximum amount you can save or invest tax-free in an ISA during one tax year.

When it comes to investing in your ISA you have two options: use it or lose it. If you don’t invest as much of your £20,000 ISA allowance as you can before the new tax year on 6 April 2019, you’ll lose any unused allowance. This can make a real difference over the long-term.

How much can you save in an ISA?

The ISA allowance increased to £20,000 in 2017 from £15,240, and will remain at this level in the 2019/20 financial year.

You can spread your ISA allowance between different types of ISA, so it’s worth checking how many ISAs you can have. You can split your annual allowance between Cash and Stocks and Shares ISAs as you like, however, there are limits on how much of your £20,000 allowance you can deposit in Junior ISAs and Lifetime ISAs:

The 2019/20 Junior ISA allowance is £4,368

The 2019/20 Lifetime ISA allowance is £4,000 (this is seen as a portion of your £20,000 ISA limit).

Although the total ISA allowance of £20,000 and the Lifetime ISA allowance of £4,000 have stayed the same this year, the 2019 Junior ISA allowance was increased in line with inflation.

Here’s how the ISA allowance has changed over the past five years:

ISA allowance reset

At the beginning of each tax year, the ISA allowance resets. This means that unused allowance doesn’t roll over into the following year.

The tax year runs from 6 April to 5 April the following year. To be counted in the ISA allowance of a tax year, money must be transferred to your ISAs by midnight on 5 April.

2016 ISA changes

Significant changes to ISAs were introduced in 2016 in a bid to help savers during a period of very low interest rates, and to make ISAs more flexible.

The new ISA rules of 2016 included:

An increase in the total ISA allowance of over 30% from £15,240 to £20,000, applicable from April 2017.

Introduction of the Innovative Finance ISA, available from April 2016.

Introduction of the Lifetime ISA, available from April 2017.

Ability to withdraw and replace money from an ISA within the same tax year without these transactions counting towards the annual ISA allowance.

These changes have been positive, with an estimated 95% of savers not paying tax on their savings income.

However, this masks a decline in the number of British adults using a portion of their ISA allowance in the 2017/18 financial year, from 11.1 million to 10.8 million, according to the Individual Savings Account Statistics released by the government.

Whilst the number of cash ISAs fell by nearly 700,000, the number of Brits investing in a stocks and shares ISA rose by nearly a quarter of a million (246,000). This meant cash ISAs made up 72% of all ISA subscriptions in 2017/18, down from 77%.

Over £69 billion was saved and invested in adult ISAs in 2017/18 with the £7.8 billion increase being driven by an increase in popularity of the stocks and shares ISA. The average person invested £6,409 of their £20,000 ISA allowance, the government figures show.

Types of ISA

With any ISA, you won’t pay tax on interest earned on cash, or on income and capital gains from investments. A simple and tax-efficient way of investing is with a Stocks and Shares ISA.

Each type of ISA meets different investment needs, so whether you’re saving for the short-term, long-term or for a specific goal, like buying your first home, there’s an ISA to suit you.

Stocks and Shares ISA

If you’re looking for a simple, tax-efficient way to grow your money on the financial markets, a stocks and shares ISA is probably for you. A stocks and shares ISA allows you to invest your money through the ISA wrapper, shielding any returns from tax. Making the most of your annual allowance each year can help you maximise your returns over the long run.

Investing is a popular way to offset the impact of inflation on your money and grow your money over time. You can invest in shares, bonds, funds and other investments through your ISA wrapper.

A Stocks and Shares ISA is generally considered a long-term saving option, and as with any investment, there is risk involved.

Cash ISA

A Cash ISA is like an ordinary savings account, without the tax. There are different Cash ISAs to meet different needs, such as instant access and fixed interest rate. You can open a cash ISA with most high street banks and building societies, but you’re only allowed to put money in one cash ISA each year.

Although cash has traditionally been viewed as a ‘safe’ place to keep your money, the low returns available on easy access cash ISAs mean your money is probably losing value to inflation rather than growing for your future.

This is why more Brits are looking to the financial markets to protect their money from inflation and grow it for the future. However, if you have a short-term horizon or want to take on less risk, this may be the most appropriate for you.

Junior ISA

Parents or guardians can manage a Junior ISA on behalf of their child if they are under 16. Once aged 16, a child can take control of the account or open a Junior ISA themselves. The money always belongs to the child and cannot be withdrawn until they are 18 years old. Junior ISAs are available as cash or stocks and shares variants, and money can be saved in one or both types of account.

Innovative Finance ISA

The money you save is used to fund peer-to-peer lending, corporate loans or crowdfunding. Savings are spread between multiple loans, but as there is always a chance a borrower won’t repay a loan, there is risk.

Lifetime ISA

You can benefit from a government top-up of 25% of your contributions, in addition to any interest earned. A Lifetime ISA can hold cash, stocks and shares or both. A Lifetime ISA must be opened before your 40th birthday and you can only contribute to it until you turn 50. Money can only be withdrawn when you’re buying your first home, when you are aged 60 or over, or if you become terminally ill.

Help to Buy ISA

Suitable for first-time property buyers, savings must be used towards the purchase of a first home. When you are ready to buy your first house, the government tops up your contributions by 25%. Your solicitor or conveyancer must apply for this bonus straight after your offer on a property is accepted. The Help to Buy ISA is available until 30th November 2019, and the government bonus must be claimed by 1st December 2030. The Help to Buy ISA is a special type of Cash ISA, so you can’t contribute to another Cash ISA in the same tax year.

The US Federal Reserve is due to meet this week to discuss monetary policy. Most people expect the Fed governors to make a statement that basically repeats their most recent comments that they aren’t planning to raise interest rates.

They might also cut their forecasts for US GDP growth for this year – probably citing weaker global growth and the impact of the government shutdown on growth in the first quarter.

Broadly speaking, they are probably going to repeat what they said at the last meeting. There might be some additional details, but that seems to be the majority expectation. But even that can be interesting – for two reasons. First, everyone will look for signs of how the Fed view has changed. Are they more worried about the economy than we thought? Or they actually a bit more optimistic?

The chart below shows the market-implied probability of a rate cut in 2019. It’s still relatively low, but it has been rising since the end of March to 32.3%.

The number of Wall Street economists expecting a rate cut this year is rising, albeit at a lower pace. What’s more interesting is that they still see a better than 50% chance of a rate hike this year. We don’t think that’s expected by financial markets.

Why could we see a rate hike this year?

Wall Street economists are nothing if not fallible. But the chart below outlines the argument well. Basically, the Fed has historically hiked interest rates as wage growth has accelerated. And we’re still seeing wage growth in the US picking up – even in the last report, when job growth was a little disappointing. Now we’re still some way below the peak wage growth of 2007, but so are US interest rates.

What about the second point?

The second point is whether everything is in the price. It is, as we’ve said before, unknowable. No one can really know for certain what is priced into financial markets. If equity markets have already reacted to financial news (in this case, that the Fed stops raising rates), will simply repeating that statement cause a reaction?

In theory it shouldn’t. And that’s another reason why analysts will be looking for new information from the Fed statement.

What does it all mean?

Financial markets aren’t expecting the Fed to hike rates this year. And that’s probably the most likely scenario.

But there are reasons to think that view could change. Would that be a major problem for equities? We don’t think so, provided growth remains decent. But if the rally was started by a more cautious Fed, you’d guess that signs of possibly higher rates could see some profit-taking from investors. And we think it’s something that’s worth monitoring.

The Bank of Mum and Dad are involved in 1/4 property purchases. With such generosity comes the risk of putting your financial future in jeopardy, however, so we’ve pulled together some tips to make it a little easier on the purse-strings.

One of the largest mortgage lenders in the UK, the Bank of Mum and Dad are providing crucial cash injections to one in four property purchases, as were set to give or loan over £5.7 billion in 2018 alone.

With such generosity comes the risk of putting your financial future in jeopardy, however, so we’ve pulled together some tips to make it a little easier on the purse-strings.

Interestingly, whilst British parents are propping up property purchases worth £82 billion, the amounts being handed over by the Bank of Mum and Dad are actually in decline. Overall, the amount changing hands fell 17% over the last 12 months, research from financial services company L&G shows.

As you would expect, the picture is different across the UK, with contributions from parents in the northeast and southwest sinking, whilst parents in London dig deeper into their pockets, with contributions rising to over £30,000.

It’s no surprise parents are being so generous, it can take first-time buyers up to a decade to save for a deposit, research from Which? Mortgage Advisers shows. Over two-thirds need to save for over 24 months to buy a property, whilst a quarter of Brits need five-10 years to save.

When it comes to lending or giving your children a chunk of cash, it’s important you seek financial advice. You may want to gift some or part of it, but you can also explore the option of loaning the money and charging interest.

This is popular with many parents. The average interest rate on Bank of Mum and Dad loans in 4.3%, which is much higher than the standard bank rates of 2%, crowdfunding property service UOWN found.

Don’t sacrifice your financial future

Whilst it’s noble helping your children onto the property ladder, it’s important you don’t sacrifice your financial future in the process. Parents are raiding their life savings, releasing equity on their homes or downsizing, or even using some of their pension tax-free lump sum in equal measure to help their children buy property.

Being the ninth largest mortgage lender in the UK comes at a price though, as L&G found that nearly 1 in 5 parents are accepting a lower standard of living, whether that’s cutting back on a holiday or delaying a car purchase.

With house prices so expensive, it can feel like you have to do something drastic to help your children across the threshold. But there are some simple ways you can make your money work harder for you and your family, without it impacting your future financial wellness.

Invest in an ISA

You can invest up to £20,000 in your stocks and shares ISA each financial year, and watch your money grow, knowing it’s protected in your tax-free wrapper.

If you’re looking to give or loan your children money in the next five years, you may want to look at putting your money in a cash ISAs – although you won’t be able to earn high returns.

If you’ve got five years or more to save, you can make your money work harder for you on the financial markets. Inflation can eat into the value of money sat in cash accounts earning negligible returns, which can be a bitter pill to swallow over the long-term, especially against rising house price trends.

You can split your annual allowance between a stocks and shares ISA, cash ISA, Lifetime ISA (LISA), and Innovative Finance ISA. It’s an individual allowance, which means couples can put up to £40,000 in their ISAs each year to benefit from the tax-free returns.

Regular investment plans

We’ve developed three long-term investment plans for people wanting to make the most of their ISA allowance. Below, we’ve outlined what you could have by investing in a £400 a month, £800 a month or £1,600 a month regular investment plans for 10 years.

We’ve assumed you’ll have invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds. We’ve also factored in a 1% annual fee charged quarterly.

If you’d started investing in this 60/40 model portfolio in 1990 and continued to mid-2018, your money would have grown by an annualised 7.49%. We’ve assumed this rate of growth for our regular savings plans below, along with a more conservative 5% growth estimate – in line with guidance set by the FCA.

£400 a month

How much you’ll have with 7.49% annualised growth: £67,122

How much you’ll have with 5% annualised growth: £59,094

If you put £400 into your ISA each month, you’ll have £67,122 to give your children to help them on the property ladder, assuming 7.5% growth. Take more of a conservative view and this falls to just over £59,000, although this will still make a meaningful impact on your child’s deposit, helping them agree a more favourable deal on their mortgage.

£800 a month

How much you’ll have with 7.49% annualised growth: £134,243

How much you’ll have with 5% annualised growth: £118,188

If you’re looking to use half of your annual ISA allowance, you should set up a direct debit for £800 a month. You’ll have over £118,000 if your investments grow at an annualised 5%, or £134,243 if your investments continue their long-term trend and grow by 7.49%.

This will give you the freedom to split between siblings, or put down a larger deposit, making the mortgage agreement even better for your children, and giving them the freedom to invest in their own future.

£1,600 a month

How much you’ll have with 7.49% annualised growth: £268,486

How much you’ll have with 5% annualised growth: £236,375

To invest your entire ISA allowance each year, you’ll need to invest £1,600 a month. You’ll be in a good position after ten years, with £236,375 if your investments grow by an annualised 5%, or nearly £269,000 if they grow by 7.49%. You may even be able to buy a property outright for your child in this instance, depending on where you’re looking.

You’ll still have £800 of your allowance to play with each year, but you can add this to your investments to make your money work even harder. Remember, if you don’t use your allowance in the tax year, it doesn’t roll over – so it’s use it or lose it.

Start early

Don’t sacrifice your future with your generosity. The benefits of starting as early as possible are clear to see, but it’s never too late to start saving for your family’s future.

Work out how much you can invest each month, and stick to it. The benefits of pound cost averaging mean you can maximise your returns by smoothing out the price you pay for an asset, lowering the total price during any uncertainty.

When you’re looking to grow your wealth, there are some simple things you can do to make your money go further, and it all starts with getting the right investment account for your goals. So, should you pick an ISA or a General Investment Account (GIA)?

When you’re looking to grow your wealth, there are some simple things you can do to make your money go further, and it all starts with getting the right investment account for your goals. So, should you pick an ISA or a General Investment Account (GIA)?

There’s no denying that the financial world can be complicated and full of jargon – which can be off putting when you’ve got a busy life to navigate, with other priorities distracting you from completing your personal finance to-do list.

But investing doesn’t need to be complicated. At Moneyfarm, we’re committed to simplifying investments and changing the relationship you have with your money.

Does my account impact my investments at Moneyfarm?

No matter whether you’re investing in a Moneyfarm ISA, General Investment Account (GIA) or, you’ll be given the same level of investment advice to help you reach your goals. You can open a number of different investment accounts with Moneyfarm.

If you’re hoping to help your children on the property ladder, are planning a sabbatical, or are planning a career change, you might be looking for a more flexible account to help grow your money. The Moneyfarm Stocks and Shares ISA and General Investment Account may suit your needs, depending on your financial situation.

What is a stocks and shares ISA?

A stocks and shares ISA is a simple and tax-efficient way to grow your money over the long-term. You can invest up to £20,000 each financial year, and any growth in the value of your money and any income can build up protected within your tax-free wrapper.

You usually have to pay capital gains tax on any profit you make on your investments above your annual allowance. This is £11,700 for the 2018/29 tax year. Whilst this sounds like a lot, it’s a realistic target to be aiming for when you’re investing for the long-term.

If you invest your money in an ISA, you won’t need to pay a thing in capital gains or dividend tax. Making the most of the tax benefits available to you is crucial for maximising your returns over the long-term.

The ISA allowance is an individual one, which means couples can invest up to £40,000 in their ISA each year. However, it resets annually and you can’t roll it over into the new tax year, which means you have to use it or lose it!

A common misconception is that you lock your money away when you invest in a stocks and shares ISA. Whilst it’s important to stress how important long-term investing is for your returns, ISAs have evolved to be much more flexible, allowing you to take money out and replace it within the tax year without it affecting your overall allowance.

It’s also getting easier to take your money out. With wealth managers like Moneyfarm, the flexibility of our portfolios and platform means you can get your money out in five working days without paying a thing.

The tax benefits of an ISA are subject to change in the future, so it’s important you make the most of the generous tax benefits available to you.

Simple yet effective, ISAs are popular with investors of all experience looking to grow their money.

What is a general investment account

General Investment Accounts (GIA) are good options for investors who have already used up their ISA allowance for the year. There are no tax benefits to be found in your GIA, which means there are no limits to how much you can put in each year.

This flexibility means you can put in and withdraw as much as you like from your GIA.

You won’t need to pay dividend tax on any income you get under the £2,000 annual allowance.

You won’t need to pay capital gains tax on any profit you make under the £11,700 threshold, although this allowance includes any profit you make during the tax year, from a business, second home or heirloom, for example.

You don’t want to be stuck in a situation in the future where you have to pay more tax than you need to because you didn’t invest through your ISA.

You can open as many GIAs as you like, however, GIAs usually count as part of your estate for working out how much inheritance tax (IHT) is due. An ISA can be passed onto a spouse free from IHT.

Much like an ISA, you can hold a broad range of investments in your GIA, including funds, shares, investment trusts and ETFs.

Picking the investment account that will help you reach your goals doesn’t need to be difficult, although if you’re unsure you should seek financial advice.

Investment advice

When you invest with Moneyfarm, we provide you with a unique combination of regulated investment advice and discretionary fund management.

After getting to know more about you, your financial background and your goals, we’ll assign you with an investor profile that outlines your risk profile. We’ll then match you with an investment portfolio that’s been specifically built and managed by our team of experienced fund managers to reflect your profile.

You can always give one of our qualified Investment Consultants a call if you’ve got any questions, although we won’t be able to give you advice on which accounts to open.

If you’re looking for a simple, tax-efficient way to grow your money on the financial markets, a stocks and shares ISA is probably for you. Yet, with a number of different options available, how do you know which is best? Here are five things to look out for when finding the right ISA.

It might seem like the ISA landscape is complex due to the number of options available, but the good news is that it’s really quite simple. ISAs are essentially just savings or investment accounts that allow you to grow your money tax-free.

Normally you’d be required to pay tax on any profit you make above your annual capital gains tax allowance when you sell your investments, and on any income you earn above the dividend allowance. If you put it in an ISA, you don’t have to pay a thing.

What types of ISAs are there?

The different types of ISAs available include the cash ISA, stocks and shares ISA, Lifetime ISA, and Innovative Finance ISA. Each play their part in reliable financial planning.

You can invest up to £20,000 each year into your stocks and shares ISA, although you can spread your allowance between different types if you wish.

If you’re fed up with the returns available on savings accounts due to the low interest rate environment, you might want to grow your money on the financial markets. You should have paid off any expensive debt, have three months of outgoings saved up in case of an emergency, and have a longer time-horizon before you start investing, however.

Due to the fundamental dynamics of the financial markets, you need to be able to take on some risk if you want to grow your money for the future. If you’re looking to grow your money for something in the next two years, you’ll want to protect the value of your money so you can reach your goals. Your portfolio will naturally be more risk-averse, which limits the scope for return.

Time can be your best friend when investing, many people hunt for that elusive edge that will help them reach their goals, the ‘holy grail’. All you really need is time, this allows you to take on those riskier investments in the hope for bigger returns and means you can ride out any short-term fluctuations.

Below are the five things you should look for in an ISA.

1. Investment advice

Stocks and shares ISAs are often DIY vehicles, which means you’re required to manage your investments yourself. You have the flexibility to choose what goes into your portfolio, but you have the responsibility of planning your investment strategy, outlining your asset allocation, and researching the investments that best reflect you to go into your portfolio.

Many people like this freedom, but for those who are too busy to manage their investments by themselves, or lack the financial confidence to be in charge of the family finances, investment advice can help people make better decisions with their money.

Making the right decisions for your financial situation means you’re more likely to reach your financial goals, whatever they may be, and lead a better quality of life.

Innovation in the financial services sector means that people can now access investment advice at the touch of a button and at a fraction of the price of the traditional industry. It can also be delivered anywhere and at any time, whether on your daily commute, over a glass of wine once the kids are in bed, or over brunch at the weekend.

Investment advice helps people invest in a way that’s right for them. Understanding your financial background, appetite for risk and nature of your financial goals means you can build your investment portfolio in the best way to achieve these.

At Moneyfarm, our world-class technology means we provide cost-effective investment advice and ongoing suitability tests to ensure you’re investments continue to put you in the best position to reach your goals for as long as you invest with us.

2. ISA portfolios fully-managed by an Investment Team

Once you know what your stocks and shares ISA portfolio should look like in terms of asset allocation, how do you decide which investments to go in it?

Once you’ve got your portfolio set up, do you have the time and discipline to manage your portfolio to ensure you’re on the right track? You can invest up to £20,000 in your ISA each year, so you’ll want to know you’re investing in the best place for your goals.

Many people love the thrill and responsibility of managing their investments themselves, but others just don’t have the time, skill or knowledge to do their financial future justice.

That’s why many prefer the experts to do it for them, so they can focus on the important things in life, knowing a team of professionals have their best interests at heart.

At Moneyfarm, our investment strategy is built around our strategic asset allocation, which takes a 10-year view on market trends. Whilst we can forecast where we’re going to be in a decade, we know the route there might not be smooth, so we complement our strategic strategy with a tactical overlay to take advantage of any new opportunities that arise along the way.

Our asset allocation team monitor the markets daily, and meet with the Investment Committee every two weeks to discuss common themes and trends. This results in portfolio adjustments around three-five times a year.

3. Don’t let fees eat into your return

Traditionally, having an expert manage your money for you has come at a big cost. The more you pay in fees, the more your investments have to grow for you to breakeven, and then grow even further to make a profit.

It doesn’t help that pricing structures have also traditionally been convoluted, with many investors unaware of how much they’re actually paying in fees. All investors should be able to access cost-effective investment advice and discretionary fund management to help them reach their financial goals.

Thanks to changes in the regulatory landscape, wealth managers now have to adopt Moneyfarm’s philosophy of transparency and simplicity, although look out for exit fees as these still aren’t clear on many platforms. When you invest with Moneyfarm, you’re charged just two fees, a management fee and an ETF fee.

The management fee is calculated on a sliding scale depending on how much you have invested, and the ETF fee is an average 0.3% – we could go cheaper, but we would sacrifice on geographical diversification, which we think is a crucial risk management tool to building portfolios.

4. Free transfers

Whether you’ve built up a small fortune in a cash ISA or have a number of different stocks and shares ISAs cumulated up over the years, many investors like to transfer their ISA into one place to benefit from cheaper fees and manage their investments more easily.

When you want to move your money from one ISA provider – whether a bank, asset manager or investment platform – to another, it’s important you transfer your money correctly. You don’t want to take your money out of your ISA wrapper because you will lose your tax-free benefits you’ve accrued over the years.

ISA transfers have become simple and hassle-free for investors looking to make their money work harder for them, but it’s important you understand whether you’ll be charged anything to move providers as this could impact your decision.

Costs like transfer fees, whether hidden or not, can eat into an investor’s return. At Moneyfarm, we believe investors should be able to transfer in and out for free – and you can. One of our founding philosophies was to be transparent over costs, too, which is why we don’t have any hidden charges.

5. Regular investing

In addition to increasing the amount you have invested in your ISA, it also averages out the amount you spend for an investment over time, potentially lowering it during times of volatility.

That means you could end up paying less for an asset, which means it will be that bit easier to make a profit.

Regular investment plans are a great way to benefit from pound cost averaging, but make sure you know how much setting up and running a regular investment plan will cost you. At Moneyfarm it doesn’t cost a thing to deposit money in your account or set-up a standing order.

This means you keep more of your money invested in the market, which can help you benefit from compound interest – where your earnings are reinvested to earn their own return. Albert Einstein called this the eighth wonder of the world, and it can make a real difference over the long run.

Investing in an ISA is one of the simplest ways to grow your money tax-free, but the generous benefits available mean there are some rules you have to keep to, like how many ISAs you can invest in.

How many ISAs can I have?

You can only put money into one of each type of ISA in one financial year, although you can spread your annual allowance across a number of different types of ISAs – cash, stocks and shares, Innovative Finance and Lifetime ISA.

This means you could choose to invest your entire £20,000 annual allowance in your stocks and shares ISA or, for example, invest £10,000 for the long-term, and put £10,000 in your cash ISA for shorter-term goals.

That doesn’t mean you’re restricted to one provider, however. You can open one stocks and shares ISA each year. If you have a number of different ISAs with different investment providers, you’ll have to choose which one you want to pay into in a single tax year.

Transferring your ISA

If you decide to open a new ISA with a different provider but have already used part of your annual allowance, you’ll need to transfer your old ISA to your new provider to pay into it.

If you do want to transfer your ISA, make sure you understand whether/what you’ll be charged. Some providers have complicated and expensive fee structures which means transferring your money can become expensive.

At Moneyfarm, we don’t charge you a thing to move your money to or away from us, which gives you the flexibility to do what’s right for you and your family.

Transferring old ISAs won’t impact your annual allowance, either. For example, you could transfer £75,000 from an old ISA and still have your £20,000 allowance to invest for the remainder of the tax year – assuming you hadn’t already used any of your annual allowance.

To transfer your ISA to Moneyfarm, all you need to do is open an account, select ISA, then fill out an ISA transfer form, detailing exactly what you want to transfer to us. We’ll do the rest, it really is that simple.

Make sure you transfer your ISA properly to ensure you keep your money within the tax-free wrapper and don’t lose any of your tax-efficient benefits.

How many different ISAs are there?

The two most common ISAs are cash ISAs and stocks and shares ISAs, both of which play an important role in financial planning.

Cash ISAs are good for savers who want to protect their money, but don’t have a long time horizon and don’t want to take on much risk with their money.

Although cash ISAs can protect the initial value of savings over the short-term, the low returns on cash ISAs means a lot of money sat in cash could be losing value to inflation over time.

Stocks and Shares ISAs are good for those who want to prioritise growing their money over the long-term. Make sure you’ve paid off any expensive debt, have three months of outgoings saved up in case of an emergency, and have a longer time-horizon before you start investing.

You can also invest in a Lifetime ISA and Innovative Finance ISA. Despite promising a 25% bonus to help first-time buyers, the new LISA has been controversialdue to its plans to penalise savers if they need to access their cash early.

The LISA can only be used to buy a first home or for retirement at the age of 60, otherwise it’s locked up. When you invest in a pension, you can access your savings from the age of 55.

If a saver needs to urgently access their savings, they’ll have to pay out 25% of the amount withdrawn as a penalty – which includes the bonus, any income generated on that bonus and a fee.

Calls by an influential government body to abolish the Lifetime ISA have put the future of this government savings scheme under doubt.

How much can I put in an ISA?

You can put up to £20,000 into your ISA each year, and any growth in the value of your money and any income can build up tax free. There’s no lifetime limit, which means you can make your money go further over the long-term.

The annual allowance is flexible, and you can put money in and withdraw it within the financial year and it won’t affect your annual allowance.

It’s also a personal allowance, which means a couple can invest up to £40,000 a year tax free. If you don’t want to invest all of your ISA allowance, you don’t have to. You can spread it across different ISAs to make the most of the different financial planning tools available to help secure your financial future.

How many different ISAs per household?

You can have a number of different ISAs per household as there is an ISA to suit everyone.

If your child’s under 16 you can put money in a Junior ISA for them, after which they can open a cash ISA (age 16 minimum). You need to be 18 to invest in a stocks and shares ISA, Innovative Finance ISA and LISA.

Essentially, as long as you’re a UK resident, there’s an ISA for you.

Can I consolidate all of my ISAs into one?

If you’ve got a number of different ISAs, consolidating them all into one place can make your investments easier to manage and cheaper to run.

It can be difficult knowing whether you’re on track to reach your goals if your money is spread out across a number of different ISAs. Not only will putting your investments in one place make it easier to keep on track, but you’re also more likely to benefit from the power of compounding.

Compound interest is where the returns your money earns are reinvested and earn their own returns. This can make a real difference with larger sums of money and can maximise your returns over the long-run.

As we look back at February, we asked the same questions that we did in January around global growth, corporate earnings, trade and Brexit. And we’re beginning to see the first signs really about what direction we’re going to go into for the rest of the year.

Will the recovery continue with the same momentum?

The recovery that we saw in equity markets in January continued into February. The questions remain, however, how strong really is the economic growth that we see globally? How is that translating into corporate earnings? And what can we say about valuations?

On the first point, economic growth has continued to disappoint, at least versus expectations, but we’re beginning to see some signs of improvement. We’ve seen some recent data from out of Europe that suggests at least some signs of green shoots, and the US continues to do okay if not spectacular.

On the earnings side, earnings overall have been a little bit disappointing and we’ve seen expectations for this year come down. Now, the possibility is that if we begin to see economic growth improve those expectations will begin to bottom out and that could be supportive for equities.

And finally on valuations, having seen a bit of a de-rating towards the end of last year, following the market volatility, we’ve seen valuations begin to increase over time. That suggests that some of the strong performance we’ve seen over the first couple of months of the year might become a little bit more muted as the year goes on.

Are trade tensions nearly over?

There’s been a lot of discussion about trade in recent months specifically the trade dispute between the US and China. The signs are now, however, that we could be moving towards an agreement between the two sides and that could see tariff barriers begin to come down a little bit.

This matters for global markets particularly because of its impact on global growth. Lower tariffs could see an increase in trade volumes and increase in investor confidence and in consumer confidence as well and that could help underpin the global economy.

So, when we think about that the question for us is really twofold.

Firstly, will there be an agreement – which broadly speaking is what markets seem to expect currently? And, secondly, to what extent is it already priced into financial markets?

Our best guess is that we will see a trade deal of some sort in the next few weeks and that should help underpin global growth, but the challenges of the US-china relationship aren’t going to be solved so simply and we would expect to see ongoing questions and issues over the coming months and years.

Why have you got an eye on inflation?

After a couple of months of relatively good results, we might conclude that financial markets are expecting the global economy and corporate earnings to improve and we might be beginning to see the very first signs of that in some of the recent data.

But it’s too soon to make that call and it’s something we’ll continue to monitor over the coming weeks and months.

One potential risk that we’re focusing on is actually around inflation – which is the rate of price growth for general goods and services.

Now, this might seem a bit surprising, after all inflation has actually been far lower over the last ten years than Central Banks might have expected and that’s allowed them to keep interest rates lower for far longer than they probably thought they would.

But we are seeing some signs of wage growth accelerating particularly in the US and if that were to translate into higher inflation it could prompt Central Banks to revisit their interest rate policy rather sooner than the market currently expects.